Question

If $300 is invested at a 4% interest rate for 4 years. How much more compound interest is earned vs. simple interest (in other words, what was the interest on interest)?

(Round to the nearest cent and do not enter the dollar sign)

Find the future value of the following cash flow:

$10 in 4 years at 5%

(Round to the nearest cent and do not enter the dollar sign

Answer 1

Present value or deposit amout = 300

interest rate (i) = 4%

number of years (n) =4

Future value under compound interest = PV*(1+i)^n

=300*(1+4%)^4

=350.957568

FV under simple interest = PV*(1+(i*n))

=300*(1+(4%*4))

=348

interest on interest = FV under compound interest - FV uder simple interest

=350.957568-348

=2.957568

So interest on interest is $2.96

b

present value = 10

interes rae (I) = 5%

years (n)=4

Future value under compound interest = PV*(1+i)^n

=10*(1+5%)^4

=12.1550625

FV is $12.16