Question

The international bank- compound interest- 4% for the first year. 1% for each extra year

The friendly bank- compound interest- 5% for the first year. 0.5% for each extra year.
at the end of 2 years, viv wants to have as much money as possible
which bank should she invest her £2000 in?

Answer 1

To determine which bank is best for Viv to invest her £2000 to maximize her returns over two years, we calculated the compound interest for both banks. The Friendly Bank offers a higher total return after two years, amounting to £2221.5, compared to the International Bank which offers £2184.

Step-by-step explanation:

The question is about calculating compound interest to determine which bank will provide the highest return over two years for an initial investment of £2000. We need to compare the interest rates from both banks for the first and second year to calculate the total amount after two years.

For the International Bank:

• Year 1: 4% interest
• Year 2: 1% additional interest, making it 5%

For the Friendly Bank:

• Year 1: 5% interest
• Year 2: 0.5% additional interest, making it 5.5%.

We calculate the total amount for each bank:

International Bank compound interest calculation:

• End of Year 1: £2000(1 + 0.04) = £2080
• End of Year 2: £2080(1 + 0.05) = £2184

Friendly Bank compound interest calculation:

• End of Year 1: £2000(1 + 0.05) = £2100
• End of Year 2: £2100(1 + 0.055) = £2221.5

Viv should invest in the Friendly Bank to have the most money after two years, as it will give her £2221.5 compared to £2184 from the International Bank.