You invest $10,000 at a 12 percent annual rate of return for 5 years. How much...

You invest $10,000 at a 12 percent annual rate of return for 5 years. How much additional interest will this investment provide if it pays interest compounded annually as opposed to simple interest? (Round to the nearest dollar)

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Expert Solution

Calculation of Simple Interest
Interest= PNR Where, P= Principal amount invested, N= No. of years for which the amount is invested, & R= Rate of Interest.
Simple Interest =	1000012%5Years
Simple Interest =	$6,000.00

Calculation of Compound Interest
Interest = (P(1+R)^N)-P Where,P= Principal amount invested, N= No. of years for which the amount is invested, & R= Rate of Interest.

Compound Interest =	(10000(1+0.12)^5)-10000
Compound Interest =	$7,623.42

Thus the additional Interest that the investment will provide is equal to $ 7623 - $ 6000, i.e., $1623

jeff jeffy answered 1 year ago

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