Question

Abbie is in high school and saves money from her afterschool job to buy a car after she graduates from college. She wants a new car but knows it will cost more than $20,000. By her freshman year, she has saved $12,000. Which of the following would most help her have the most money by graduation?

(A) A checking account
(B) A compound interest account
(C) A simple interest account
(D) A high risk investment

Answer 1

B, a compound interest account

Step-by-step explanation:

A compound interest account adds the earned interest that is added to the original deposit each time it is calculated. The interest is compounded and interest on the interest is earned.

This would be the best account for Abbie as it would generate the most money for her. The interest is fixed here, meaning that she won't lose any money either. A checking account does not carry much interest nowadays and a high risk investment is dangerous, as there is the possibility to lose all the saved money.