Compounding — Compare Accounts

Question

Connor invested $300 in an account paying an interest rate of 7 1/4% compounded annually. Aubree invested $300 in an account paying an interest rate of 7 1/8% compounded daily. After 12 years, how much more money would Aubree have in her account than Connor, to the nearest dollar?

Answer 1

The formula for compound interest is A = P(1+r/n)^nt

P = Principal

r = rate

n = number of compoundings per year

t = time in years

Connor = 300(1+0.0725)¹² = 694.85 rounded to the nearest dollar is 695

Aubree = 300(1+0.07125/365)^365*12 = 705.35 rounded to the nearest dollar is 705

705-695 = Aubree has $10 more after 12 years than Connor