Nan and Neal are twins. Nan invests $5,000 at 7 percent at age 25. Neal invests $5,000 at 7 percent at age 30. Both investments compound interest annually. Both twins retire at age 60 and neither adds nor withdraws funds prior to retirement. Which statement is correct?
A) Nan will have less money when she retires than Neal.
B) Neal will earn more interest on interest than Nan.
C) Neal will earn more compound interest than Nan.
D) If both Nan and Neal wait to age 70 to retire they will have equal amounts of savings.
E) Nan will have more money than Neal at any age.

Question

Quizplus · Accepted Answer

Nan starts investing 5 years earlier than Neal, allowing her more time to earn interest on her investment. This advantage of compound interest over time means Nan will always have more money than Neal as long as they both invest the same amount at the same interest rate, regardless of when they choose to retire.

Nan and Neal Are Twins