Question

Compare $4,200 deposited into a savings account that earns 4.5% simple interest for 6 years to $4,200 deposited into a savings account that earns 4.5% compound interest, compounded annually, for 6 years.

A) The simple interest account with $5,334.
B) The compound interest account with the calculated amount.
C) Both accounts will have the same balance.
D) It's impossible to determine without more information.

Answer 1

To compare the simple interest and compound interest earned on $4,200 deposited into a savings account that earns 4.5% interest for 6 years, use the formulas for simple and compound interest.

Step-by-step explanation:

To compare the simple interest and compound interest earned on $4,200 deposited into a savings account that earns 4.5% interest for 6 years, we can use the formulas for simple and compound interest.

Simple Interest: Simple Interest = Principal × Rate × Time

Compound Interest: Compound Interest = Principal × (1 + Rate/100)Time - Principal

Calculating the amount of simple interest, $4,200 × 0.045 × 6 = $1,134.

Calculating the amount of compound interest, $4,200 × (1 + 0.045/100)6 - $4,200 = $1,187.53.

Therefore, the correct answer is B) The compound interest account with the calculated amount.