Let's say that you are interested in opening an inverstment account that you will keep for at least 20 years. Compare the future values of that account using simple interest and compound interest if the interest rate is 2.6% and is compounded annually. Which type of interest (simple or compound) would you choose for your investment and why?
Accepted Solution
A:
Answer:over 20 years, the value of the compound interest account is about 10% moremy choice is the compound interest account because of its higher earningsStep-by-step explanation:For principal amount P, the future value of the simple interest account will be ... P(1 + rt) = P(1 + .026·20) = 1.52PThe future value of the compound interest account will be ... P(1 +r)^t = P(1.026^20) ≈ 1.6708875PThe value of the compound interest account is about 10% greater after 20 years.I would choose the compound interest account because it has a higher rate of return.