Question

A bank offers two interest account plans. Plan A gives you 6% interest compounded annually.

Plan B gives you 13% annual simple interest. You plan to invest $2,000 for the next 4 years.
Which account earns you the most interest (in dollars) after 4 years? How much will you have
earned?
(1 pol

Answer 1

We can use the formula A = P(1 + r/n)^(nt) to calculate the future value (A) of the investment, where P is the principal amount, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years.

For Plan A, P = $2,000, r = 6%, n = 1 (compounded annually), and t = 4. Substituting these values into the formula, we get:

A = 2000(1 + 0.06/1)^(1*4) = $2,494.47

The interest earned is the difference between the future value and the principal amount:

Interest earned = $2,494.47 - $2,000 = $494.47

Plan B:

For Plan B, we can use the formula I = Prt to calculate the interest earned, where P is the principal amount, r is the annual interest rate, t is the number of years, and I is the interest earned.

For Plan B, P = $2,000, r = 13%, and t = 4. Substituting these values into the formula, we get:

I = 2000 * 0.13 * 4 = $1,040

Therefore, the amount earned after 4 years is:

Plan A: $2,494.47

Plan B: $3,040

So, Plan B earns the most interest after 4 years. The amount earned with Plan B is $3,040 - $2,000 = $1,040.