SOLUTION: An amount of $1100 is deposited for 6 years in an account that earns 6% interest. (Round your answers to two decimal places.)
(a) Calculate the simple interest earned.
$
(b
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Question 1202015: An amount of $1100 is deposited for 6 years in an account that earns 6% interest. (Round your answers to two decimal places.)
(a) Calculate the simple interest earned.
$
(b) Calculate the interest earned if interest is compounded daily.
$
(c) How much more interest is earned on the account when the interest is compounded daily?
$
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
sinple interest is i = p * r * n
i is the intereest
p is the present value
r is the interest rate per time period
n is the number of time periods.
the time periods are in years.
when n = 6 years and r = .06 per year, you get:
p = 1100
r = .06
n = 6
formula becomes:
i = 1100 * .06 * 6 = 396.
if the interest rate is compounded daily the formula becomes:
i = f - p
i is the interest
f is the future value
p is the present value
with daily compounding, the time periods are in days.
since f = p * (1 + r) ^ n, the formula becomes:
i = p * (1 + r) ^ n - p
i is the interest
p is the present value
r is the interest rate per year / 365 = interest rate per day (365 days assumed in a year).
n is the number of years * 365 = number of days.
when n = 365 * 6 and r = .06/365 and p = 1100, the formula becomes:
i = 1100 * (1 + .06/365) ^ (365 * 6) - 1100 = 476.6157097.
the difference between the compound interest and the simple interest is 476.6157097 minus 396 = 80.61570989 = 80.62 rounded to two decimal places, in favor of the compound interest..
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