Question 9.1: A homeowner has $2500 available and has the option to invest......

Energy-Efficient Electrical Systems for Buildings [1086323]

A homeowner has $2500 available and has the option to invest this money in either (i) a bank that has an annual interest rate of 5% or (ii) buying a new air conditioning system for his home. If he decides to invest all the money in the bank, how much will the homeowner have after 15 years? Compare this amount if simple interest rather than compounded interest had been paid.

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If the interest is compounded with $P=\$2500,N=15, and i = 0.05$ , the investment will accumulate to the total amount F:

F=\$2500*(1+0.05)^{15}=\$5197

Thus, the homeowner’s original investment will have doubled over the 15-year period.

If simple interest had been paid, the total amount that would have accumulated is slightly less:

F=\$2500*(1+0.05*15)=\$4375

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