The formula for determining interest compounded monthly is A = P(1 + r over 12)12t, where A represents the amount invested after t years, P the principal invest

Question

The formula for determining interest compounded monthly is A = P(1 + r over 12)12t, where A represents the amount invested after t years, P the principal invested, and r the interest rate. Jimmy invests $2,000 at an interest rate of 10% for 4 years, while Jenny invests $2,000 at an interest rate of 5% for 8 years. Determine the amount of return gained by Jimmy and Jenny. In complete sentences, summarize your results.

Answer 1

Assuming "amount of return" is referring to the return in dollars we want to calculate A for each and then subtract the original investment:

 

Jimmy:

 

A = 2,000(1+(.1/12))^12*4 = 2,000(1.49) = 2980   Return = 2980 - 2000 = $980

 

Jenny:

 

A = 2,000(1+(.05/12))^12*8 = 2,000(1.49) = 2980  Return = 2980-2000 = $980

 

 

Both Jimmy and Jenny make a return of $980. Ask yourself though, who made the better investment?