Suppose when you are 21 years old, you deposit $1,000 into a bank account that pays annual compound interest, and you do not withdraw from the account until your retirement at the age of 65, 44 years later. How much more will be in your account if the interest rate is 6 percent rather than 4 percent?
A)$880
B)$2,390
C)$5,617
D)$7,369

Question

Quizplus · Accepted Answer

Use the formula FV = PV (1 + i)ⁿ, where i is the interest rate and n the number of years. At 6 percent interest, your deposit after 44 years = $1,000 × (1.06)⁴⁴ = $12,985.48. At 4 percent interest, your deposit after 44 years = $1,000 × (1.04)⁴⁴ = $5,616,52. The difference is $7,369.

Suppose When You Are 21 Years Old, You Deposit $1,000