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Posted by on Monday, August 23, 2010 at 3:41am.

How much more money would I have if I invested $14,000.00 for 8 years at 6.4% in an account that compounded annually rather than in an account that just earned simple interest? Why is this?

  • math - , Monday, August 23, 2010 at 5:59am

    With annual compounding you would have
    14,000*(1.064)^8 = 22,996.46

    With simple interest you end up with
    14,000*[1+(.064)*8] = 21,168.00

    With simple interest, you do not earn interest on the interest that you (the investor) should have collected during the term of the deposit, but which the bank kept.

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