Question

Charly is going to deposit $970 in an account that earns 5.8% interest compounded annually. Her sister Rob will deposit $970 in an account that earns 3.2% simple interest each year. They deposit the money on the same day and make no additional deposits or withdrawals from the accounts. Which account will have the most and by how much after 13 years?

Answer 1

Charly's account will have the most money after 13 years with a difference of $424.89.

Step-by-step explanation:

To compare the two accounts, we need to calculate the final amounts after 13 years for each account. Using the formula for compound interest, we can calculate the final amount in Charly's account:

Final Amount = Principal * (1 + Interest Rate)Time

For Charly's account: Principal = $970, Interest Rate = 5.8% = 0.058, Time = 13 years

Final Amount = $970 * (1 + 0.058)13 = $1,936.33

For Rob's account: Principal = $970, Interest Rate = 3.2% = 0.032, Time = 13 years

Final Amount = Principal + (Principal * Interest Rate * Time) = $970 + ($970 * 0.032 * 13) = $1,511.44

Therefore, Charly's account will have the most money after 13 years. The difference in the amounts is $1,936.33 - $1,511.44 = $424.89.