Question

Two brothers, John and Tom, each inherit $23,000. John invests his inheritance in a savings account with an annual return of 2.6%, while Tom invests his inheritance in a CD paying 4.6% annually. How much more money than John does Tom have after 1 year?

a. $80.00
b. $140.00
c. $340.00
d. $460.00

Answer 1

John earns $598 and Tom earns $1,058 in interest after 1 year. Tom has $460 more than John.

Step-by-step explanation:

To calculate the difference in money between John and Tom after 1 year, we need to calculate the interest earned by each brother. John invests $23,000 in a savings account with an annual return of 2.6%, and Tom invests $23,000 in a CD with an annual return of 4.6%.

For John, the interest earned after 1 year is calculated by multiplying his initial investment by the annual return rate: $23,000 * 0.026 = $598.

For Tom, the interest earned after 1 year is calculated in the same way: $23,000 * 0.046 = $1,058.

The difference in money between Tom and John after 1 year is $1,058 - $598 = $460.

Therefore, the correct answer is option d. $460.00.