Between simple interest at 8% and compound interest at 9%, find the higher resulting balance after investing $500 for a period of 10 years. Round the answer to two decimal places. The higher resulting balance after investing $500 for a period of 10 years is $?

Answer 1

To calculate the balance with simple interest, we use the formula:

Balance = Principal * (1 + interest rate * time)

For simple interest:
Principal = $500
Interest rate = 8% = 0.08
Time = 10 years

Balance (simple interest) = 500 * (1 + 0.08 * 10)
Balance (simple interest) = 500 * (1 + 0.8)
Balance (simple interest) = 500 * 1.8
Balance (simple interest) = $900

To calculate the balance with compound interest, we use the formula:

Balance = Principal * (1 + interest rate)^time

For compound interest:
Principal = $500
Interest rate = 9% = 0.09
Time = 10 years

Balance (compound interest) = 500 * (1 + 0.09)^10
Balance (compound interest) = 500 * (1.09)^10

Using a calculator:
Balance (compound interest) ≈ 500 * 1.938630865
Balance (compound interest) ≈ $969.31

Therefore, the higher resulting balance after investing $500 for 10 years is $969.31.