Question

The Continental Bank advertises capital savings at 6.6% compounded annually, while TD Canada Trust offers premium savings at 6.5% compounded monthly. Suppose you have $2,000 to invest for two years. What is the difference in the amount of interest?

Select one:

a. 4.00

b. 4.04

c. 4.17

d. 4.08

Answer 1

The difference in the amount of interest is about $4.146.

Explanation:

Given information: Principal = $2000, time = 2 year.

The formula for amount is

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

where, P is principal, r is rate of interest, n is number of times interest compounded in an year and t is time in years.

The Continental Bank advertises capital savings at 6.6% compounded annually.

`A=2000(1+(0.066)/(1))^((1)(2))=2272.712`

The interest is

`I_1=A-P=2272.712-2000=272.712`

D Canada Trust offers premium savings at 6.5% compounded monthly.

`A=2000(1+(0.065)/(12))^((12)(2))=2276.85786593\approx 2276.858`

The interest is

`I_2=A-P=2276.858-2000=276.858`

Difference in the amount of interest is

`Difference= I_2-I_1=4.146`

The difference in the amount of interest is about $4.146.