Answer: D) $2.37
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Step-by-step explanation:
We'll be using the compound interest formula
A = P*(1+r/n)^(n*t)
where,
A = amount of money after t years
P = amount deposited
r = interest rate in decimal form
n = number of times money is compounded per year
t = number of years
For Lydia, we are given
P = 1000
r = 0.0525 (decimal form of 5.25%)
n = 365 (assuming 365 days in a year)
t = 3
So,
A = P*(1+r/n)^(n*t)
A = 1000*(1+0.0525/365)^(365*3)
A = 1,170.5675 <<<--- use calculator here; value is approximate
A = 1,170.57 <<<--- rounding to the nearest penny
This means Lydia will have $1,170.57 after three years
In contrast, for Gabrielle, we know
P = 1000
r = 0.0525
n = 2 (semi-annual means twice a year)
t = 3
So,
A = P*(1+r/n)^(n*t)
A = 1000*(1+0.0525/2)^(2*3)
A = 1,168.20489 <<<--- value is approximate
A = 1,168.20 <<<--- rounding to the nearest penny
Which means Gabrielle makes $1,168.20 after three years
Subtract the results
1,170.57-1,168.20 = 2.37
So that's why $2.37 is the answer