Answer :
The simple interest earned is $17,000.
The interest earned with annual compounding is $25,978.13.
The interest earned with quarterly compounding is $26,583.59.
The interest earned with monthly compounding is $26,722.72.
The formula that can be used to determine simple interest is: principal x time x interest rate
$20,000 x 20 x 0.0425 = $17,000
The formula that can be used to determine the interest earned with compounding is: Future value - amount invested.
The formula that can be used to determine future value is:
FV = P (1 + r/m)^nm
FV = Future value
P = Present value
R = interest rate
m = number of compounding
N = number of years
Annual compounding = $20,000 x (1.0425)^20 = $45,978.13
Interest earned = $45,978.13 - $20,000 = $25,978.13
Quarterly compounding = $20,000 x (1 + 0.0425/4)^80 = $46,583.59
Interest earned = $46,583.59 - $20,000 = $26,583.59
Monthly compounding = $20,000 x (1 + 0.0425 /12) ^240 = $46,722.72
Interest earned = $46,722.72 - $20,000 = $26,722.72
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