Perform online research and find the formula for calculating compound interest. If Mr. John Chrystal invests $6,000 today (Present Value) at a compound interest of 9 percent, calculate the Future Value of the investment after 30 years using the compound interest formula. In addition, calculate the Future Value of the investment 30 years from now using a 9 percent simple interest rate. State the difference between the two Future Values (using compound and simple interest). You may use an online calculator to determine the answer.

Calculation using compound interest:

The formula for calculating compound interest is below:

In the above given formula,

FV = Future Value

PV = Present Value

r = rate of interest

n = number of years to be compounded

Thus, we have:

Thus, the Future Value (FV) of the given investment will be $79,800 after 30 years at a compound interest rate of 9 percent.

Calculation using simple interest:

Simple interest rate applies only on the principal value of the initial investment every year. Thus, 9 percent of $6,000 is $540.

The simple interest earned over 30 years =

FV = $16,200 (simple interest earned over 30 years) + $6,000 (initial investment) = $22,200

Thus, the Future Value (FV) of the given investment will be $22,200 after 30 years at a simple interest rate of 9 percent.

The difference between the two FVs = $79,800 (using compound interest) – $22,200 (using simple interest) = $57,600. This illustrates the power of compounding.

Explanation:

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