Question

Tony invests £50,000 in value bank for 3 years Sarah invests £50,000 in main bank for 3 years At the end of the three years how much money will Tony and Sarah each have in their accounts? (Value Bank: Compound Interest 3% for each year......Main Bank: Compound Interest 4.2% for the first year, 1.2& for each extra year)

Answer 1

Tony = £54636.35

Sarah = £53357.90

Answer 2

• Tony: £54,636.35
• Sarah: £53,357.90

Explanation:

You want to know the account values of Tony and Sarah if they each invest £50,000 for 3 years. Tony's account earns 3% per year, compounded, and Sarah's account earns 4.2% the first year and 1.2% thereafter.

Multiplier

The multiplier of account value each year is (1 +r) where r is the annual interest rate.

Tony

The value of Tony's account will be ...

£50,000 × (1 +0.03)(1 +0.03)(1 +0.03) = £50,000(1.03³) = £54,636.35

Sarah

The value of Sarah's account will be ...

£50,000 × (1 +0.042)(1 +0.012)(1 +0.012) = £50,000(1.042)(1.012²)

= £53,357.90

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