Question

Rachel deposits $60000. Into account that pays simple interest rate at 2% per year Michael deposits $60000. Into account t that also pays 2% interest per year but compounded annually what is the interest each year for the first three years who earns more interest

Answer 1

Calculation of annual interest with a simple interest rate for Rachel :

Annual interest (Rachel) = Initial amount × interest rate

Annual interest (Rachel) = 60000 × 0.02

Annual interest (Rachel) = $1200

Rachel will receive annual interest of $1200 for the first three years.

Calculating annual interest with a compound interest rate for Michael :

For interest compounded annually, the formula for calculating interest is :

Annual interest (Michael) = Initial amount × (1 + interest rate)^number of years - initial amount

Annual interest (Michael) = 60000 × (1 + 0.02)^1 - 60000

Annual interest (Michael) = 60000 × 1.02 - 60000

Annual interest (Michael) = 61200 - 60000

Annual interest (Michael) = $1200

Michael will also receive annual interest of $1200 for the first three years, even with compound interest.

Rachel and Michael will receive $1200 annual interest for the first three years.

Explanation: