Question

Exercise 6-2 Morgan Jackson invests $40,600 at 10% annual interest, leaving the money invested without withdrawing any of the interest for 10 years. At the end of the 10 years, Morgan withdraws the accumulated amount of money. Compute the amount Morgan would withdraw assuming the investment earns simple interest. (Round answers to 0 decimal places, e.g. 458,581.) Total withdrawn $enter total withdrawn in dollars rounded to 0 decimal places Compute the amount Morgan would withdraw assuming the investment earns interest compounded annually. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Total withdrawn $enter total withdrawn in dollars rounded to 0 decimal places Compute the amount Morgan would withdraw assuming the investment earns interest compounded semiannually. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Total withdrawn

Answer 1

(a)Simple Interest:

Principle amount = $40,600

Simple Interest = 10%

With drawl amount = Principle + Interest = Principle + (Principle * Interest * time in years)

=> = Principle ( 1+ (Interest*time in years)

=> = $40,600 ( 1 + (0.10 * 10 )

=> = $40,600 * (1+1)

=> = $81,200

Therefore Jackson would withdraw $81,200 after 10 years.

(b) Compounded annually:

Principle amount = $40,600

Annual compound Interest = 10%

With drawl amount = Principle [ 1 +( rate per year/ periods per year)] ^{Total periods}

=> = $40,800 [ 1 + (0.10/1)]¹⁰

=> = $40,800 (1.10)¹⁰

=> = $40,800 * 2.593742

=> = $105,306

Therefore Jackson would withdraw $105,306 after 10 years.

(c)Semi-annual compounding:

Principle amount = $40,600

Compound Interest = 10%

Total periods = 10 years * twice a year = 20 periods

With drawl amount = Principle [ 1 +( rate per year/ periods per year)] ^{Total periods}

=> = $40,800 [ 1 + (0.10/2)]²⁰

=> = $40,800 (1.05)²⁰

=> = $40,800 * 2.653298

=> = 107,724

Thereforem Jackson would withdraw $107,724 after 10 years.