Question

Emily invested $4,000 at 5% interest compounded every year, and another $4,000 at 5% simple interest. What will be the net gain in the worth of her compound interest investment compared to the simple interest investment at the end of second year?

Answer 1

$10

Explanation:

Investment 1- simple interest

• Gain= 4000*2*0.05= $400

Investment 2- compound interest

• Gain= 4000*(1.05²-1)= $410

The difference:

• $410-$400= $10