Business Finance
Math question help needed

Question Description

You have $540 in an account which pays 4.2% compounded annually. How many additional dollars of interest would you earn over 4 years if you moved the money to an account earning 6.6%?  (Round to the nearest Cent)

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Final Answer

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$540 Pays 4.2% Annually

what about a 6.6% interest


The formula for annual compound interest is A = P (1 + r/n) ^ nt:

Where:

A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed for

P=$540

r=4.2%=0.042

n=1

t=4

A=540(1+0.042)^4

A=540 * 1.042^4

A= 540 *  1.178883 

A=$ 636.5971  


For A rate of 6.6%

P=$540

r=6.6%=0.066

n=1

t=4

A=540(1+0.066)^4

A=540 * 1.066^4

A= 540 *  1.291305

A=$ 697.3047 


Get the difference

= $697.3047- $636.5971  

=$ 60.7076 

Round of to the nearest Cents

=$60.7


Please let me know if you need any clarification. I'm always happy to answer your questions.

nicholasKim (1183)
University of Virginia

Anonymous
Really useful study material!

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