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)

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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