Question

A principal amount of $900 will be placed in a savings account for 13 years with an APR of 2.9%. What is the difference in the total account balances if simple interest is applied, compared to monthly compounded interest?

$972.22
$339.30
$72.22
$27.22

Answer 1

Answer: $72.22 (choice C)

Step-by-step explanation

Let's find out how much would be in the account if simple interest was used.

A = P*(1+r*t)

A = 900*(1+0.029*13)

A = 1239.30

Now let's find how much would be in the account if compound interest was used, and we compounded monthly.

A = P*(1+r/n)^(n*t)

A = 900*(1+0.029/12)^(12*13)

A = 1311.5172528321

A = 1311.52

Subtract the two results:

1311.52 - 1239.30 = 72.22 is the final answer.