Question

Savannah deposits $226.00 each month into a savings account that earns annual simple interest of 1.6% on the current principal balance of $4,059.00. in three years, what will the difference be between the balance at the current savings amount versus adding an additional $50.00 each month? a) $400.00

b) $500.00
c) $600.00
d) $700.00

Answer 1

To find the difference between the balance at the current savings amount and adding an additional $50 each month, we calculate the future balances separately using simple interest and then find the difference.

Step-by-step explanation:

To find the difference between the balance at the current savings amount versus adding an additional $50 each month, we can calculate the future balances separately and then find the difference.

For the current savings amount, we can use the formula for simple interest: Future amount = Principal + (Principal x Interest Rate x Time). In this case, the principal is $4059.00, the interest rate is 1.6% (or 0.016), and the time is 3 years. Plugging in these values, the future balance would be $4059.00 + ($4059.00 x 0.016 x 3) = $4464.44.

Now, let's calculate the future balance with an additional $50 each month. In this case, the principal would be $4059.00 + ($50 x 36) = $6339.00. Using the same formula for simple interest, with a principal of $6339.00, an interest rate of 1.6%, and a time of 3 years, the future balance would be $6339.00 + ($6339.00 x 0.016 x 3) = $6953.52.

The difference between the two balances is $6953.52 - $4464.44 = $2489.08. Therefore, the correct answer is $2489.08.