Question

Suppose when you are 21 years old, you deposit $1,000 into a bank account that pays annual compound interest, and you do not withdraw from the account until your retirement at the age of 65, 44 years later. How much more will be in your account if the interest rate is 6 percent rather than 4 percent

Answer 1

Answer:

After 44year at interest rate of 6%

You will have $12,985.5 in your account

Explanation

Step one

Applying the compound interest formula we have A = P (1 + r/n)^nt

A = Final amount

r= nominal annual interest rate in percentage terms,

and n = number of compounding period

Where P = Principal

t= time in years

Given p=$1,000

n=44

r=6%

Step two

Inserting our given information

A=$1000 [(1 + 0.06/1)^44*1]

A=$1000 [(1.06)^44*1]

A=$1000*12.9854819127

A=$12,985.5

Answer 2

Answer:

$7368.96

Explanation:

For a Principal P invested at rate r over a period of n years.

[TeX] Amount \: at \: Compound \: Interest= P(1+r)^n [/TeX]

In the case above,

P=$1000

n=44 years

At Rate,r=4%=0.04

[TeX] Amount \: at \: Compound \: Interest= 1000(1+0.04)^{44} [/TeX]

[TeX] = 1000(1.04)^{44} [/TeX]

[TeX] = 5616.52 [/TeX] dollars

At Rate,r=6%=0.06

[TeX] Amount \: at \: Compound \: Interest= 1000(1+0.06)^{44} [/TeX]

[TeX] = 1000(1.06)^{44} [/TeX]

[TeX] = 12985.48 [/TeX] dollars

The difference at 6% instead of 4%

=12985.48-5616.52

=$7368.96