Question

2. Lorena is trying to choose between two different savings accounts at H-Town Bank. She will deposit $3,500 dollars and will leave the money in the account for 12 years. There will be no additional money deposited or withdrawn from the account.​

Answer 1

First of all, this question is not complete. So, we will be hypothetically create two accounts and try to choose the one with the greater profit.

Choice 1 = X = Final Amount after 12 years = $5600

Choice 2 = Y = Final Amount after 12 years = $6285.50

Hence, Lorena should choose choice 2, as it gives more profit over than choice 1.

Explanation:

First of all, this question is not complete. So, we will be hypothetically create two accounts and try to choose the one with the greater profit.

Initial Deposit Amount = $3500

Time period = 12 years

Let's Suppose Lorena has two X and Y choices of accounts at H-town Bank.

X = simple interest of 5% over the initial amount for 12 years.

Y = Compound interest 5% over the initial amount for 12 years.

Solution:

Let's calculate the profit for choice 1 = X

Simple interest = 5%

Initial amount = $3500

Time period = 12 years

Formula = A = P (1 + rt)

where, A = Final amount after 12 years

t = time period in years = 12

P = initial amount to be deposited = $3500

r = annual interest rate = 5%

Plug in the values to get the total amount.

A = 3500(1+0.05x12)

A = $5600 = final amount Lorena will get after 12 years.

Let's calculate the profit for choice 2 = Y

Compound interest = 5%

Initial amount = $3500

Time period = 12 years

Formula = A = P
`((r)/(n) + 1)^(nt)`

where,

A = Final amount after 12 years

t = time period in years = 12

P = initial amount to be deposited = $3500

r = annual interest rate = 5%

n = number of times interest rate is applied or compounded. = 12

Plug in the values to get the total amount.

A = P
`((r)/(n) + 1)^(nt)`

A = $6285.50

Hence, Lorena should choose choice 2, as it gives more profit over than choice 1.