Question

Marco wants to invest his savings in a bank for 3 years. He has ?15000 to invest and recieves offers from two banks: bank of peace= 2.5% a year compound interest or bank of trust= 3.8% for 1st year 1% extra for each extra year. Which bank should marco choose to get the most interest over the three year period? You must show all your working

Answer 1

Answer: He should invest in second bank to get the most interest over the three year period.

Explanation:

Since the initial amount= $15000 and number of years=3

Here, Compound Interest rate in first saving bank = 2.5% a year

Thus, the total amount by the first bank =
`1500(1+(2.5)/(100) )^3`

= 16153.359375

Therefore, compound interest by first bank = 16153.359375- 15000= 1153.359375

While, Compound Interest rate in second saving bank = 3.8% for 1st year 1% extra for each extra year.

Thus, the total amount by the second bank=
`1500(1+(3.8)/(100) )(1+(4.8)/(100))(1+(5.8)/(100))`=17263.76688

Therefore compound interest by the second bank = 17263.76688-15000=2263.76688

Since, compound interest by first bank < compound interest by the second bank

Thus, he will get more interest in second bank than first bank.