QuestionAnn invests \$40,000 at 4% compounded annually. Jim invests \$40,000 at 4% simple interest. Calculate their interest for 3 years and compare.

Studdy Solution
In the third year, Ann earns more interest than Jim. Ann earns $5,062.40 and Jim earns$4,800.
In conclusion, Ann earns more interest than Jim in the second and third years due to the effects of compound interest. In the first year, they both earn the same amount of interest because the effects of compound interest have not yet taken effect.