Question

The formula for determining interest compounded monthly is A=P(1+r/12)^(12t), where A represents the amount invested after t years, P the principal invested, and r the interest rate. Jimmy invests $1,000 at an interest rate of 10% for 3 years, while Jenny invests $1,000 at an interest rate of 5% for 6 years. Determine the amount of return gained by Jimmy and Jenny. In complete sentences, summarize your results.

Answer 1

Look at what is given to you in the question.

For Jimmy, the value of r is 10%, which is equivalent to 0.1 and t=3, so using this in the formula for A gives 1000*(1 + (0.1/12))^36 = $1,348.

For Jenny, the value of r is 5% and t = 6 so substituting this gives 1000*(1 + (0.05/12))^72 = $1,349.

So I can say with 100% confidence that Jenny earns more than Jimmy, even if there is only $1 in it.