Question

Diane deposits $70,000 into an account that pays 3% interest per year, compounded annually. Henry deposits $70,000 into an account that also pays 3% per year. But it is simple interest. Find the interest Diane and Henry earn during each of the first three years. Then decide who earns more interest for each year. Assume there are no withdrawals and no additional deposits.

Answer 1

Explanation:

For Diane's account:

Year 1: Interest = $70,000 x 0.03 = $2,100

Year 2: Interest = ($70,000 + $2,100) x 0.03 = $2,163

Year 3: Interest = ($70,000 + $2,100 + $2,163) x 0.03 = $2,227.89

For Henry's account:

Year 1: Interest = $70,000 x 0.03 = $2,100

Year 2: Interest = $70,000 x 0.03 = $2,100

Year 3: Interest = $70,000 x 0.03 = $2,100

For the first year, both Diane and Henry earn the same interest of $2,100. However, for the second and third years, Diane earns more interest than Henry. Therefore, Diane earns more interest for each year after the first year