Question

You invest $1,000 in each of two accounts. Account A earns simple interest at a rate of 2.42% over 4 years. Account B earns simple interest at a rate of 2.42% over 24 months. Find the interest earned by each account. How does the interest earned by the two accounts compare?

Answer 1

Account A = $96.80

Account B = $48.40

Step-by-step explanation

We have that in the two accounts A and B, $1000 is invested.

We want to find the simple interest earned by the two accounts. To do this, we apply the formula for Simple Interest:

`SI=(P\cdot R\cdot T)/(100)`

where P = principal (amount invested)

R = rate

T = amount of time

ACCOUNT A

It earns simple interest at a rate of 2.42% over 4 years.

Therefore, the simple interest earned is:

`\begin{gathered} SI=(1000\cdot2.42\cdot4)/(100) \\ SI=\text{ \$96.8}0 \end{gathered}`

ACCOUNT B

It earns simple interest at a rate of 2.42% over 24 months. For this, we have to divide by 12 months (since the formula is originally for year).

Therefore, the simple interest earned is:

`\begin{gathered} SI=(1000\cdot2.42\cdot24)/(100\cdot12) \\ SI=\text{ \$48.40} \end{gathered}`

We have calculated the Simple Interest for both accounts.

We see that the simple interest for Account A is twice that of Account B. This is simply because Account A earned for twice the amount of time that Account B earned for.