Answer:
Year Jessica Tom Who earns more?
1 $400 $400 They earn the same amount
2 $408 $400 Jessica earns more
3 $416 $400 Jessica earns more
Explanation:
At simple interest, the amount of interest is the same each year
First year: Since compounding takes place only at the end of the year, both of them earn the same amount of interest
Interest earned = 20,000 x 0.02 = $400
Same for both boxes for first year
Both of their deposits will increase by $400 to $20,400
For second year
Jessica's interest is calculated on 20,400 = 20,400 x 0.02 = $408
Her deposit value at the end of year 2 = 20, 400 + 408 = $20,808
Tom's interest is calculated on the original deposit since it is simple interest. So in year 2, Tom still makes $400.
In year 2 Jessica earns more interest than Tom
Jessica: $408
Tom : $400
For third year, Jessica's interest is calculated on her deposit value of 20,800 = 20,800 x 0.02 = $416
Tom's interest for 3rd year is the same as for the previous years = $400
So in third year, Jessica earns more