Question

Jim and bill each invest $15,000 into savings accounts that earn 3.5% interest. Jims account earns simple interests and bills account earns compound interest. After 25 years, who will earn more interest and how much more will he earn.

Answer 1

Bill will earn more interest

He will earn $ 20,448.67 from his investment

Explanation:

Firstly let us calculate Jim's earnings based on simple interest

A = P(1 + rt)

Calculation:

First, converting R percent to r

a decimal

r = R/100 = 3.5%/100 = 0.035 per year.

Solving our equation:

A = 15000(1 + (0.035 × 25)) = 28125

A = $28,125.00

The total amount accrued, principal plus interest, from simple interest on a principal of $15,000.00 at a rate of 3.5% per year for 25 years is $28,125.00 for Jim

Now let's us calculate bill's investment based on compound interest

Equation

A = P(1 + r)^t

A=15000(1+0.035)^25

A=15000(1.035)^25

A=15000*2.36324498427

A = $ 35,448.67

We see that Bill will earn

$ 20,448.67 from his investment