Answer:
Accumulated sum
Simple interest $5400
Compound interest $12,109.4
Explanation:
Simple interest
Under simple interest only the principal earns interest
The accumulated sum using simple Interest
Accumulated sum = P + (P× R × T)
Principal- 1,800, r- rate - 10%, n-period - 20
= $1,800 + (1800 × 10% × 20)
= $5400
Compound interest
Under compound interest is earning interest. The interest is calculated by multiplying the rate by the compound amount
Accumulated sum = P (1+r)^n
Principal- 1,800, r- rate - 10%, n-period - 20
= $1,800 ×(1.1)^(20)
= $12,109.4
Answer:
A. $5,400 and B. $12,110
Explanation:
As per given Data
Principal Value = $1,800
Interest Rate = 10% per year
Period = 20 years
A.
A Simple Interest is calculated by multiplying the interest rate to the principal value.
Interest Income = $1,800 x 10% = $180 per year
Interest Income = $180 x 20 years = $3,600
Total Account Balance after 20 years = $1,800 +$3,600 = $5,400
B.
Interest is compounded which means that the interest earned will be reinvested and next time interest income will also be earned on the the prior years interest income with the principal value. Interest Income for the period is added in the principal value for reinvestment.
Use following Compounding formula to calculate the account balance after 20 years.
Future value = Present value ( 1 + r )^n
Where
Present value = Principal = $1,800
r = Interest Rate = 10%
n = Numbers of years = 20 years
FV = $1,800 x ( 1 + 10% )^20
FV = $12,110
