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 - drwls, 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.