Jim could earn $8.10 more interest in a 3-month CD with a 3.26% simple interest rate every 3 months during the 12-month period compared to Russell's savings account with a 1.25% daily interest rate.
To calculate the interest earned in each case, we can use the formula for simple interest:
Simple Interest=P⋅r⋅t
Where:
P is the principal amount (initial deposit),
r is the interest rate per period, and
t is the time the money is invested or borrowed for in terms of the number of periods.
Let's first calculate the interest earned by Russell's deposit in the savings account:
Russell’s Interest=$1,500⋅0.0125⋅12
Now, let's find out how much more interest Jim could earn in a 3-month CD. Since the CD pays simple interest every 3 months, and we want to find the interest for the entire 12-month period, we need to calculate the interest for each 3-month period and then multiply by 4.
Jim’s Interest=$1,500⋅0.0326⋅3×4
Now, we can find the difference in interest earned:
Difference=Jim’s Interest−Russell’s Interest
Let's perform the calculations:
Russell's Interest:
Russell’s Interest=$1,500⋅0.0125⋅12=$187.50
Jim's Interest:
Jim’s Interest=$1,500⋅0.0326⋅3×4=$195.60
Difference:
Difference=$195.60−$187.50=$8.10
Therefore, Jim could earn $8.10 more interest in a 3-month CD with a 3.26% simple interest rate every 3 months during the 12-month period compared to Russell's savings account with a 1.25% daily interest rate.
Question
Russell's $1,500 deposit could earn $18.87 in 12 months in a savings account paying 1.25 % daily interest. How much more interest could Jim earn in a 3-month CD that pays 3.26 % simple interest every 3 months during the 12-month period?