Question

Two bank accounts open with deposits of $1,810 and annual interest rates of 2.5%. Bank A uses simple interest and Bank B uses interest compounded monthly How much more in interest does the account at Bank B earn in 5 years?​

Answer 1

`~~~~~~ \stackrel{ \textit{\LARGE Bank A} }{\textit{Simple Interest Earned}} \\\\ I = Prt\qquad \begin{cases} I=\textit{interest earned}\\ P=\textit{original amount deposited}\dotfill & \$1810\\ r=rate\to 2.5\%\to (2.5)/(100)\dotfill &0.025\\ t=years\dotfill &5 \end{cases} \\\\\\ I = (1810)(0.025)(5) \implies I = 226.25 \\\\[-0.35em] ~\dotfill`

`~~~~~~ \stackrel{ \textit{\LARGE Bank B} }{\textit{Compound Interest Earned Amount}} \\\\ A=P\left(1+(r)/(n)\right)^(nt) \quad \begin{cases} A=\textit{accumulated amount}\\ P=\textit{original amount deposited}\dotfill &\$1810\\ r=rate\to 2.5\%\to (2.5)/(100)\dotfill &0.025\\ n= \begin{array}{llll} \textit{times it compounds per year}\\ \textit{monthly, thus twelve} \end{array}\dotfill &12\\ t=years\dotfill &5 \end{cases}`

`A = 1810\left(1+(0.025)/(12)\right)^(12\cdot 5) \implies A \approx 2050.73~\hfill \underset{ interest }{\stackrel{2050.73~~ - ~~1810 }{\approx 240.73}} \\\\[-0.35em] ~\dotfill\\\\ 240.73~~ - ~~226.25 ~~ \approx ~~ \text{\LARGE 14.48}`