Question

Sunshine Bank offers 6% simple interest on deposits. Tangerine Bank offers 5% interest compounded annually. State the difference in final balances if $2000 is deposited in each bank for 2 years

A.$202.80
B.$35
C.$25
D$5

Answer 1

Sunshine Bank,

Si = PRT/100 = 2000x2x6/100 = $ 240

Amount = $ 2000+$ 240 = $ 2240.

Tangerine Bank,

Amount =
`p {(1 + (r)/(100) )}^(2) \\ =2000 {(1 + (5)/(100)) }^(2) \\= 2000 * (105)/(100) * (105)/(100) \\= 2000 * (21)/(20) * (21)/(20) \\ =5 * 21 * 21 \\ =5 * 441 \\= 2205`

Difference $ 2240 - $ 2205 = $ 35.

Option B. is Correct.