compouded interest?

Question

I can't get it please help!...

John deposited $1,000 at a 10% interest rate for 5 years. How much more money will John have in his account from compound interest than from simple interest if it is compounded semiannually?


Simple Interest:
A = P + (P � r � t)
A = 1,000 + (1,000 � 0.1 � 5)
A = 1,000 + (100 � 5)
A = 1,000 + 500
A = $1,500


Compound Interest:
A = P (1 + r / k) k * n
A = 1,000 (1 + 0.1/2) 2 * 5
A = 1,000 (1 + 0.05) 10
A = 1,000 (1.05) 10
A = 1,000 � 1.62889
A = $1,628.89


how did it get $1,62889 ?

Answer 1

I did not check your math but it looks reasonable; compound interest would give you more money than simple interest. The reason is that with simple interest you wait until the end of the first year before you get interest on your interest, whereas with the compound interest in this example you wait six months. Your money grows faster as a consequence.

Answer 2

did not check figures but everytim the money in componded it increasing in value -- in the above example if it had been componded quarterly it would have been a lot more!!!