If you invest $10,000 today and earn 7% per year, how much total interest will you...

If you invest $10,000 today and earn 7% per year, how much total interest will you make in 20 years? How much is simple interest and how much is due to compounding?

Solutions

Expert Solution

Simple Interest:

Simple interest earned for 20 years = Investment * Rate * 20

= 10000 * 7% * 20

= 14000

Compound interest:

Compound interest earned over 20 years = Investment * (1+ Rate)^20 - Investment

= 10000 * (1+7%)^20 - 10000

= 38696.84 - 10000

= 28696.84

Interest earned due to compounding = Total compound interest - SImple interest

= 28696.84 - 14000

= 14696.84

jeff jeffy answered 1 year ago

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