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16 May, 17:35

Carly deposited $800 in an account that earns 6% compounded annually. Lara deposited $800 in an account that earns 6% simple interest. How much will each girl have in their account at the end of 10 years if they make no withdrawals or deposits?

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  1. 16 May, 20:38
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    Carly will have $1,433 in her account at the end of 10 years.

    Lara will have $1,280 in her account at the end of 10 years.

    Explanation:

    Simpe interest pays the simple trust on the principal amount. There is no reinvestment of interest.

    In compounded Interest the Interest earned from the investment is reinvested and again interest on principal and interest amount reinvested is earned.

    Carly Deposit balance

    Principal amount = $800

    Blance after 10 years = $800 (1 + 6%) ^10 = $800 x 1.791 = $1,433

    Lara Deposit balance

    Principal amount = $800

    Amount of Interest for 10 years = 800 x 6% x 10 = $480

    Blance after 10 years = $800 + $480 = $1,280
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