If you would like to make $865 in 7 years, how much would you have to deposit in an account that pays simple interest of 5%
Please show full calculation of simple interest and your comments on it
don Answered question
Here is the solution
Let the Principal you have to deposit = P
Applying Simple interest formula
865 = P + P * 0.05 * 7
Solving P = $640.74 Ans
IF you would have earned compound interest at same i.e.5% then the amount required to be deposited would have been
865 = P(1+.05)^7
P = 865/(1.05)^7 = 614
As you can see compound interest Gives you relatively higher return than simple interest as result the amount required to be invested is lower.
Shiv Answered question
Write your answer.