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Gouldy then goes on to invests $4,000 in an account that pays 5% simple interest
Gouldy then goes on to invests $4,000 in an account that pays 5% simple interest. How much more could she have earned over a 7-year period if the interest had compounded annually?
Expert Solution
Computation of the simple interest:-
Simple interest = Principal * Rate * Time
= $4,000 * 5% * 7
= $1,400
Computation of the compound interest:-
Compound interest = (Principal*(1+rate)^n) - Principal
= ($4,000*(1+5%)^7) - $4,000
= ($4,000*1.4071) - $4,000
= $5,628.40 - $4,000
= $1,628.40
More interest = $1,628.40 - $1,400
= $228.40
More amount she could have earned over a 7-year period if the interest had compounded annually = $228.40
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