Question

Juliane has money to invest in one of two accounts for 7 years:Account 1 requires a $600 investment and earns 4.2% interest compounded monthly.Account 2 requires a $650 investment and earns 4.3% interest compounded annually.Which account has a higher return, and how much?Select the answer that is completely correct.Account 2 because it earns $68.12 more than Account 1Account 2 because it earns $18.12 more than Account 1Account 1 because it earns $16.07 more than Account 2Account 1 because it earns $363.23 more than Account 2

Answer 1

Answer:

Account 2 because it earns $18.12 more than Account 1

Step-by-step explanation:

For account 1

Principal, P = $600

Interest rate, r = 4.2% = 4.2/100

r = 0.042

Time, t = 7 years

Number of times the interest is compounded per year, n = 12

The amount after 7 years is calculated below

`\begin{gathered} A=P(1+(r)/(n))^(nt) \\ A=600(1+(0.042)/(12))^(12(7)) \\ A=600(1.0035)^(84) \\ A=804.657 \end{gathered}`

Earning = Amount - Principal

Earning = 804.657 - 600

Earning on account 1= $204.657

For account 2

Principal, P = $650

Interest rate, r = 4.2% = 4.3/100

r = 0.043

Time, t = 7 years

Number of times the interest is compounded per year, n = 1

The amount after 7 years is calculated below

`\begin{gathered} A=P(1+(r)/(n))^(nt) \\ A=650(1+(0.043)/(1))^(1(7)) \\ A=872.78 \end{gathered}`

Earning = Amount - Principal

Earning = $872.78 - $650

Earning on account 2 = $222.78

Difference in earnings between accounts 1 and 2 = $222.78 - $204.657

Difference in earnings between accounts 1 and 2 = $18.123

Account has a higher return because it earns $18.12 more than Account 1