Question

Sixty years ago, your grandparents opened two savings accounts and deposited $200 in each account. The first account was with City Bank at 3 percent, compounded annually. The second account was with Country Bank at 3.5 percent, compounded annually. Which one of the following statements is true concerning these accounts?A) The Country Bank account is currently worth $1,526.08.B) The City Bank account has earned $211.19 more in interest than the Country Bank account.C) The Country Bank account has paid $367.48 more in interest than the City Bank account.D) The Country Bank account has paid $397.30 more in interest than the City Bank account.E) The City Bank account is currently worth $1,201.54.

Answer 1

D) The Country Bank account has paid $397.30 more in interest than the City Bank account.

Step-by-step explanation:

Present value of $200 invested 60 years ago in City Bank @ 3% interest compounded annually.

$200
`*` 5.8916 Present Value Annuity Factor for 60 years = $1,178.32

Present value of $200 invested 60 years ago in Country Bank @ 3.5% interest compounded annually.

$200
`*` 7.8781 Present Value Annuity Factor for 60 years = $1,575.62

Difference in values = $1,575.62 - $1,178.32 = $397.3

Since this is the correct difference:

Statement D is correct

The Country Bank account has paid $397.30 more in interest than the City Bank account.