Economics: Principles, Problems, and Policies, 19th Edition

Published by McGraw-Hill Education
ISBN 10: 0073511447
ISBN 13: 978-0-07351-144-3

Chapter 14 - Rent, Interest, and Profit - Problems - Page 311: 4

Answer

Interest is greater by about $\$9.26$ at $6\%$ compared with $4\%$

Work Step by Step

The Future Value formula is $FV=PV\times (1+r)^t$ We are given $PV=100, t=4, r_1=0.04, r_2=0.06$. We determine FV for $r_1$: $FV_1=100\times (1+0.04)^4\approx 116.99$ The total interest is: $116.99-100=16.99$ We determine FV for $r_2$: $FV_2=100\times (1+0.06)^4\approx 126.25$ The total interest is: $126.25-100=26.25$ Now we calculate the difference in total interest: $26.25-16.99=9.26$
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