Answer:
The difference between the two rates is $4,428.33.
Explanation:
When the interest is compounded, it is calculated over the value of the investment at the end of the previous year. So, value at year 1 will be 1,000*(1+rate). At second, it will be 1,000*(1+rate)*(1+rate), or 1,000 * (1+rate)^2.
If we extend the analysis, at year 44, the investment will be worth 1,000*(1+r)^44.
If rate is 5 percent, the result of the deposit is 1,000*1.05^44 = 8,557.15
If rate is 6 percent, the result of the deposit is 1,000*1.06^44 = 12,985.48
The difference is 4,428.33.
