RatedrillSimple vs compound interest
A time value of money problem from Ratedrill. Solve it with one answer box, with fresh numbers on every attempt and the formula, calculator keystrokes and Excel version in the worked answer, and it is checked the moment you submit.
The task
Two accounts each start with $2,000 and earn 3.25% per year for 20 years. Account A pays simple interest. Account B compounds annually. How much more does Account B hold at the end?
What this problem teaches
The keys give Account B. Subtract Account A's simple-interest balance by hand. Set P/Y = C/Y = 1, so I/Y is the rate per period. Cash you pay out is negative and cash you receive is positive.
A hint if you get stuck
Find both balances. A: P × (1 + r × n). B: P × (1 + r)^n. Then subtract.
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