1.1. suppose you invest $1000 for five years at 6% simple interest. How does the simple interest compare to the compound interest?
compound interest: the interest of a sum of money is added to the principal,and then become
a secondary principal.the interest come from the money you invest and the secondary principal.
so the interest annually is :1000*[(1+6%)^5 -1]
Note:x^5 means x to the fifth power
simple interest:the interest cannot be added to the principal.so only the first principal can bear interest.
under the simple interest concept,the interest is :1000*(6%)*5
so you see,the compound can bear more interest.
2.find the amount of money in a savings account if $1000 is invested for five years at 6% interest compounded quarterly.
1000*(1+6%/4)^(4*5)
3. suppose you leave $100 in each of three bank accounts paying 5% interest per year. one account pays simple interest, one pays interest compounded semiannually , and one pays interest compounded quarterly. find the amount of money in each account after three years
(1)simple interest:100*5%*3
(2)compounded semiannually:100*(1+5%/2)^(3*2)
(3)compounded quarterly:100*(1+5%/4)^(3*4)