Question

Katie invests $5,000 in an account earning 4% interest, compounded annually for 5 years. Two years after Katie's initial investment, Emily invests $10,000 in an account earning 4% interest, compounded annually for 3 years. Given that no additional deposits are made, compare the amount of interest earned after the interest period ends for each account. (round to the nearest dollar) A) Katie earned $408 more in interest in her account than Emily. B) Emily earned $408 more in interest in her account than Katie. C) Katie earned $166 more in interest in her account than Emily. D) Emily earned $166 more in interest in her account than Katie.

Answer 1

Emily earned $166 more in her account than Katie.

Explanation:

Answer 2

Emily earned $166 more in her account than Katie.

We use the compound interest formula for both of these:


`A=p(1+r)^t`

For Katie's deposit:

`A=5000(1+0.04)^5=5000(1.04)^5 = 6083.26`

This gives Katie 6083.26-5000 = 1083.26 in interest (1083, to the nearest dollar).

For Emily's deposit:

`A=10000(1+0.04)^3=10000(1.04)^3=11248.64`

This means she earned 11248.64-10000=1248.64 in interest (1249, to the nearest dollar).

The difference in interest is given by 1249-1083=166