Question

Mitch and Bill or both each suddenly 51 which was 23 years old he began the pause in $1000 per year to a savings account he made deposits for the 1st 10 years of which point he was forced to stop making a posits however he left his money in the account where continue their own interests for the next 42 years valve did not start C and toes 48 fold before the next 27 years he laid or deposits of $1000 as soon that both accounts earned an average annual return of 7 I sat compound once a year complete parts a to D

Answer 1

• What is Compounding Rate of Interest ?

It is form of Interest Accrual where Compound Interest is computed on Principal and on any interest earned that has not been paid or withdrawn. It is the return on (or growth of) the principal for two or more time periods. Compounding computes interest not only on the principal but also on the interest earned to date on that principal, assuming the interest is left on deposit.

To illustrate the difference between simple and compund interest, assume that you deposit $1,000 in a BANK A, where it will earn simple interest of 9% per year, and you deposit another $1,000 in Bank B , where it will earn compound interest of 9% per year compounded annually. Also assume that in both cases you will not withdraw any interest from the date od deposit till 3 years.

Therefore, the computation of Interest to be received and the accumulated year-end balance will be:

BANK A
Simple Interest Calculation	Simple Interest	Accumulated Year end Balance
Year 1: $1,000 x 9%	$                       90	$                         1,090
Year 2: $1,000 x 9%	$                       90	$                         1,180
Year 3: $1,000 x 9%	$                       90	$                         1,270
BANK B
Compund Interest Calculation	Compound Interest	Accumulated Year end Balance
Year 1: $1,000 x 9%	$                       90	$                   1,090.00
Year 2: $1,090 x 9%	$                 98.10	$                   1,188.10
Year 3: $1,188.10 x 9%	$               106.93	$                   1,295.03

The question is not clear with incorrect wordinds. I am explaining the concept of compund interest which will help you to understand the problem.

Therefore, the difference of $25.03 is due to the effect of compounding that is Interest earned on accumulated Interest component along with Principal componenet.

The Formula to Calculate Compunding Interest is