Question

7

Gabriel received a $5,000.00 bonus and wants to put the money into a savings account. A savings account at bank A earns 5%
simple interest and a savings account at bank B earns 4% interest compounded quarterly. If Gabriel plans to deposit the $5,000.00
and leave it in the account for 2 years, at which bank would he earn more interest?

Answer 1

Bank A

Explanation:

We find the Simple Interest for each Bank

Bank A

A savings account at bank A earns 5%

simple interest.

Where

P = $5,000.00

R = 5%

T = 2 years

Compound quarterly = 4

First, convert R percent to r a decimal

r = R/100

r = 5%/100

r = 0.05 per year,

Then, solve our equation for A

A = P(1 + r/n)^nt

A = 5,000.00(1 + 0.0125/4)(4)(2)

A = $ 5,522.43

A = P + I where

P (principal) = $ 5,000.00

I (interest) = $ 522.43

For Bank B

P = $5,000.00

R = 4%

T = 2 years

Compound quarterly = 4

First, convert R percent to r a decimal

r = R/100

r = 4%/100

r = 0.04 per year,

Then, solve our equation for A

A = P(1 + r/n)nt

A = 5,000.00(1 + 0.01/4)(4)(2)

A = $ 5,414.28

A = $ 5,414.28

A = P + I where

P (principal) = $ 5,000.00

I (interest) = $ 414.28

Therefore, the bank that would give Gabriel more interest is Bank A