Question

Lease help...

Tyler has $1000 that he wants to put in a savings account. He wants to save the money for 6 years. After 6 years he plans to take the money out and spend it on college. He looks at two different banks, and they offer him different interest options.

Bank A offers Tyler 4% simple interest. How much would Tyler’s investment be worth after 6 years in this account? Show your calculations below.

Bank B offers Tyler 3% interest compounded annually. How much would Tyler’s investment be worth after 6 years in this account? Show your calculations below.


In which bank should Tyler place the $1000 he is saving for college

Answer 1

He should place it in Bank A

For bank A Total amount = $1240

For bank bA= $1196.68

Explanation:

For bank A with simple interest rate of 4%

Interest = PRT/100

Interest =( 1000*4*6)/100

Interest=$240

Total amount = principal + interest

Total amount = $1000+$240

Total amount = $1240

For Bank B with compound interest rate of 3%

A = p(1+r/n)^(nt)

A = 1000(1+(0.03/6))^(6*6)

A = 1000*1.19668

A= $1196.68

Answer 2

Bank A = 1000 x (1 + (0.04*6)) = $1,240

Bank B = 1000 x (1+0.03)^6 = $1,194.05

Bank A would be worth more