Question

Travis invested $8,000 in an account that pays 4 percent simple interest. How much more could he have earned over a 7-year period if the interest had compounded annually?

Answer 1

Answer:

extra income = $287.45

Explanation:

given data

invested = $8,000

interest rate = 4 %

time period = 7 year

solution

we get here first Interest that is as simple interest

interest = Principal × rate × time   ...........1

interest = $8000 ×  7 ×  0.04

interest = $2240

so total amount will be

total amount = $2240 + $8000

total amount = 10240

when compounded annually

amount will be

Amount = Principal × $(1+r)^{t}$    ........................2

Amount = $8000 × $(1+0.04)^{7}$  

Amount = $10527.45

so extra income earn will be

extra income = $10527.45  - $10240

extra income = $287.45