Two brothers, Marvin and Luis, each invest $5,000 into accounts that earn 5% interest. Neither brother deposits or withdrawals anything from the account for 25 years. If Marvin's account earns compound interest and Luis's account earns simple interest, who will earn more interest after 25 years, and by how much?
(pick an answer)
Marvin will earn $16,931.77 more in interest than Luis.
Marvin will earn $5,681.77 more in interest than Luis.
Marvin will earn $10,681.77 more in interest than Luis.
Luis will earn $11,250 more in interest than Marvin.
Marvin will earn $16,931.77 more in interest than Luis.
Explanation:
For Marvin's account with compound interest:
Future Value = $5,000 * (1 + 0.05)^25
Future Value = $5,000 * (1.05)^25
Future Value = $13,588.08
Interest Earned = $13,588.08 - $5,000
Interest Earned = $8,588.08
For Luis's account with simple interest:
Interest Earned = $5,000 * 0.05 * 25
Interest Earned = $6,250
Difference in interest earned = $8,588.08 - $6,250
Difference in interest earned = $2,338.08
Therefore, Marvin will earn $16,931.77 more in interest than Luis.