Question

Clark invested $8,000 at 18 years ago with an insurance company that has paid him 9 percent simple interest on his funds. Angela invested $8,000 at 18 years ago in a fund that has paid him 9 percent interest, compounded annually. How much more interest has Charles earned than Ben over the past 18 years?

Answer 1

Calculaton of simple interest of Clark:

Simple interest = P * r *n

where, P = Principal amount = $8000, r is the rate of interest = 9%, n is the time period = 18

Putting the values in the above formula, we get,

Simple interest = $8000 * 9% * 18

Simple interest = $12960

Calculation of compound interest of Angela:

Here we will use the following formula:

FV = PV * (1 + r%)ⁿ

where, FV = Future value , PV = Present value = $8000, r = rate of interest = 9%, n= time period = 18

now, putting theses values in the above equation, we get,

FV = $8000 * (1 + 9%)¹⁸

FV = $8000 * (1 + 0.09)¹⁸

FV = $8000 * (1.09)¹⁸

FV = $8000 * 4.71712041729

FV = $37736.96

Compound interest = Future value - Present value

Compound interest = $37736.96 - $8000

Compound interest = $29736.96

Angela earned more interest than Clark by:

Difference = $29736.96 - $12960 = $16776.96