Question

4. Eric has $4,800 that he wants to invest for 4 years. He can invest this amount at his credit union and earn 4 percent simple interest. Or, he can open an account at Compass Bank and earn 3.65 percent interest, compounded annually. If he decides to invest at Copmpass Bank for 4 years, he will:

Answer 1

See explanation below

Explanation:

In order to do this, we just need to calculate the amount of money he'll get after the 4 years, with a simple interest and with the compound anually.

First, let's get the index variation:

4/100 = 0.04 + 1 = 1.04

The amount he will get after the 4 years will be:

P = 4800 * 1.04 * 4 = 19968 $

The interest that the credit union pays will be:

19968 - (4800*4) = 768$

Now as he decides to compound anually, let's get the index variation:

3.65/100 = 0.0365 + 1 = 1.0365

The amount he will get:

P = 4800 * (1.0365)^4 = 5540$

The interest that the bank will pay is:

5540 - 4800 = 740$

Therefore we can conclude that, as Eric decided to invest in the bank, by the end of the 4 years, he will have 28$ less, that if he were decided to invest in the credit union.