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March 27, 2017

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Suppose Kevin and Jill both deposit $4000 into their personal accounts. If Kevin’s account earns 5% simple interest annually and Jill’s earns 5% interest compounded annually, how much will each account balance show at the end of 5 years? Calculate the difference between each account

  • Math - ,

    Kevin's Account:
    Pt = Po + Po*r*t.
    Pt = 4000 + 4000*0.05*5 = $5000.

    Jill's Account:
    Pt = Po(1+r)^n.
    r = 5%/100% = 0.05 = APR expressed as a decimal.
    n = 1comp/yr * 5yrs = 5 Compounding
    periods.

    Pt = 4000(1.05)^5 = $5105.13.

    Diff. = 5105.13 - 5000 = $105.13.

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