Question

Leon Jackson invests $37,500 at 10% annual interest, leaving the money invested without withdrawing any of the interest for 10 years. At the end of the 10 years, Leon withdraws the accumulated amount of money.

Compute the amount Leon would withdraw assuming the investment earns simple interest. (Round answers to 0 decimal places, e.g. 458,581.)
Compute the amount Leon would withdraw assuming the investment earns interest compounded annually. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)
Compute the amount Leon would withdraw assuming the investment earns interest compounded semiannually. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Answer 1

Leon would withdraw $37,500 assuming the investment earns simple interest, $53,235 assuming the investment earns interest compounded annually, and $55,823 assuming the investment earns interest compounded semiannually.

Step-by-step explanation:

To calculate the amount Leon would withdraw assuming the investment earns simple interest, we can use the formula:

Simple Interest = Principal * Rate * Time

Simple Interest = $37,500 * 0.10 * 10

Simple Interest = $37,500

To calculate the amount Leon would withdraw assuming the investment earns interest compounded annually, we can use the formula:

Compound Interest = Principal * (1 + Rate)^Time - Principal

Compound Interest = $37,500 * (1 + 0.10)^10 - $37,500

Compound Interest = $53,235

To calculate the amount Leon would withdraw assuming the investment earns interest compounded semiannually, we can use the formula:

Compound Interest = Principal * (1 + Rate/2)^(2 * Time) - Principal

Compound Interest = $37,500 * (1 + 0.10/2)^(2 * 10) - $37,500

Compound Interest = $55,823