Question

Sue deposited $1,500 into two different accounts.

- She deposited $600 into an account that pays 7.5% simple interest.
- She deposited $900 into an account that pays 6% compounded annually.
If Sue does not deposit additional money into the accounts and she doesn't withdraw any
money from the accounts, which is closest to the total balance she will have in the two
accounts at the end of 5 years?
F $2,029.40
G $2,005.68
H $529.40
J $1,995.00

Answer 1

The total balance that Sue will have in the two accounts after 5 years can be calculated as follows:

Balance of the first account with simple interest:

FV = P(1 + rt)

FV = $600(1 + 0.075 x 5)

FV = $825

Balance of the second account with compounded interest:

FV = P(1 + r)^n

FV = $900(1 + 0.06)^5

FV = $1,286.87

Total balance = $825 + $1,286.87

Total balance = $2,111.87

The closest answer choice to this amount is F) $2,029.40, which is only off by a small margin. Therefore, the answer is F) $2,029.40.