What is the highest Investment total I could achieve with a five year investment, rate of...
What is the highest Investment total I could achieve with a five year investment, rate of return of 10%, initial investment of $0 and a $100 annual investment? Will simple interest be greater than compound interest?
A. More than $650, Simple Interest > Compound Interest
B. Less than $650, Simple Interest < Compound Interest
C. $650 Simple Interest < Compound Interest
D. $650 Simple Interest = Compound Interest
Homework Answers
B. Less than $650, Simple Interest < Compound Interest
FV of annuity = Annuity*((1+r)^n-1)/r
=100*(1.1^5-1)/0.1
=610.51
The future value is 610.51 and simple interest will be less than compound interest since interest is paid only on principal and not on the interest.
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