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Chapter 17: Q.40 (page 427)

Many retirement funds charge an administrative fee each year equal to 0.25% on managed assets. Suppose that Alexx and Spenser each invest $5,000 in the same stock this year. Alexx invests directly and earns 5% a year. Spenser uses a retirement fund and earns 4.75%. After 30 years, how much more will Alexx have than Spenser?

Short Answer

Expert verified

A's has$1482more than S's.

Step by step solution

01

Concept introduction

Compound interest : It's the addition of interest to the principal sum of loan.

02

Explanation of Solution for A

Given : P=$5,000,n=30years,r-5%,for A and4.75%forS

Using compound interest formulae for A,

A=P1+r100n

A=$50001+510030

A=$5,000(1+0.05)30

A=$5,000(1.05)30

A=5000脳4.32

=$21,600

03

Explanation of Solution for S

Using compound interest formulae for S,

A=P(1+r100)n

A=$50001+4.7510030

A=$5000(1+0.0475)30

A=$5000(1.0475)30

A=$5000*4.02

=$20,118

04

Final answer

Hence, A have $1482($21,600-$20,118)more than S.

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