Compound Interest, SMB-014

Sam and Charlie each invest $5000 for three years.

Sam’s investment earns simple interest at the rate of 7.5% per annum.

Charlie’s investment earns interest at the rate of 7.5% per annum compounding annually.

At the conclusion of three years, determine which investment has the highest value and by how much. (4 marks)

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`text{Charlie’s investment is worth $86.48 more than Sam’s.}`

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`text(Sam’s Investment:)`

`I=Prn = 5000 xx \frac{7.5}{100} xx 3 = $1125`

`text{Investment value}\ = 5000 + 1125 = $6125`

`text(Charlie’s Investment:)`

`text{Difference}\ = 6211.48-6125= $86.48`

`:.\ \text{Charlie’s investment is worth $86.48 more than Sam’s.}`