What is the difference in the future value of $10,000 in 5 years if it is invested at 7% simple interest or invested at 7% compounded semiannually?
A)$605.88
B)$525.52
C)$6,171.51
D)No Difference

Question

Quizplus · Accepted Answer

The future value of an investment using simple interest is calculated as $FV = P(1 + rt)$, where $P$ is the principal amount, $r$ is the annual interest rate, and $t$ is the time in years. For 7% simple interest over 5 years, this is $10,000(1 + 0.07*5) = 10,000(1 + 0.35) = 13,500$.For compound interest, the future value is calculated as $FV = P(1 + \frac{r}{n})^{nt}$, where $n$ is the number of times the interest is compounded per year. For 7% interest compounded semiannually over 5 years, this is $10,000(1 + \frac{0.07}{2})^{2*5} = 10,000(1 + 0.035)^{10} ≈ 14,105.88$.The difference is $14,105.88 - 13,500 = 605.88$.

What Is the Difference in the Future Value of $10,000