Question

A bank offers two interest account plans. Plan A gives you 6% interest compounded annually. Plan B gives you 13% annual simple interest. You plan to invest $2,000 for the next 4 years. Which account earns you the most interest (in dollars) after 4 years? How much will you have earned?

Plan A; $524.95

Plan B; $524.95

Plan A; $1,040.00

Plan B; $1,040.00

Answer 1

Plan A
The formula is
A=p (1+r)^t
A=2,000×(1+0.06)^(4)
A=2,524.95 ( future value )

Interest earned=A-p
Interest earned=2524.95-2000
Interest earned=524.95

Plan B
Use the simple interest formula
I=prt
I interest earned?
P principle 2000
R interest rate 0.13
T time 4years
I=2,000×0.13×4
I=1,040

The Answer is
Plan B; $1,040