Question

PLEASE HELP!!!

Compare the investment below to an investment of the same principal at the same rate compounded annually.

Answer 1

$156.463

Explanation:

Given that :

Principal = 5000 ; interest rate (r) = 6% = 0.06 ; interest periods (n) = 4 ; number of years (t) = 12

The compound interest formula:

A = P(1 + r/n)^nt

Investment compounded periodically :

A = 5000(1 + 0.06/4)^(4 * 12)

A = 5000(1.015)^48

A = 5000(2.0434782)

A = 10217.391

Investment compounded annually :

A = P(1 + r/n)^nt

A = 5000(1 + 0.06)^12

A = 5000(1.06)^12

A = 5000(2.012196471835550329409536)

A = 10060.98235917775164704768

A = 10060.928

Difference :

10217.391 - 10060.928 = $156.463