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How much is Seve's investment in an interest bearing security worth?

If Steve invests $5,000 in an interest bearing security paying 10% per year for 5 years, what will his investment be worth:

a. if the security pays simple interest?

b. if the security pays interest compounded annually?

c. How much simple interest is earned over the life of the investment?

d. How much compound interest is earned over the life of the investment?

Solution Preview

a. if the security pays simple interest?

Investment= Principal + Interest
=5000+2500
$7,500.00

Note: The calculation of the interest ...

Solution Summary

This explains the computation of simple interest and compound interest. Note: because a discount rate is not provided answers are nominal and not adjusted for the time value of money.

$2.19