Comparing IRA Investments

Question

Will invests $2000 in his IRA in a bond trust that pays 9% interest compounded semiannually. His friend Henry invests $2000 in his IRA in a certificate of deposit that pays 81/2% compounded continuously. Who has more money after 20 years, Will or Henry?

Answer 1

Step 1:

Will invests the principal amount $.

The rate of interest .

The period of time years.

The interest compounded semiannually .

Using compound interest formula amount .

The total amount of Will is

The amount Will has $.

Step 2:

Henry invests the principal amount $.

The rate of interest .

The period of time years.

The interest compounded continuously.

Using continuously compound interest formula .

The total amount of Henry is

The amount Henry has $.

Solution:

The amount Will has $.

The amount Henry has $.

Will has more money than Henry after 20 years.