How much more will you earn on a lump sum investment of $20000 if you increase your risk tolerance to improve your return from 6 percent to 8 percent over a 20-year period?

Question

Quizplus · Accepted Answer

The difference in earnings can be calculated using the formula for compound interest: A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount (the initial sum of money), r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the time the money is invested for in years. For simplicity, we'll assume the interest is compounded annually (n=1). For a 6% interest rate over 20 years: A1 = $20,000(1 + 0.06)^20 = $64,143.62For an 8% interest rate over 20 years: A2 = $20,000(1 + 0.08)^20 = $93,219.22The difference: A2 - A1 = $93,219.22 - $64,143.62 = $29,075.60, which rounds to $29,077.

How Much More Will You Earn on a Lump Sum