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?

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

Explanation: