Question

HELP PLEASE, NO FILES OR LINKS PLEASE

Thomas is going to deposit $840 in an account that earns 7.5% interest compounded annually. His wife Sheril will deposit $1,250 in an account that earns 6.9% simple interest each year. They deposit the money on the same dayand make no additional deposits or withdrawals for the accounts. What statement is true concerning Thomas' and Sheril's account balance after 5 years?

a
Thomas' account will have about $475.32 less than Sheril's account.
b
Sheril's account will have about $475.32 less than Thomas' account.
c
Thomas' account will have about $431.25 less than Sheril's account.
d
Sheril's account will have about $431.25 less than Thomas' account.

Answer 1

A

Explanation:

I am to determine the future value of Thomas' deposit with annual compounding

The formula for calculating future value:

FV = P (1 + r)^n

FV = Future value

P = Present value

R = interest rate

N = number of years

840 x (1.075)^5 = 1205.93

I am to determine the future value of Sherill's deposit in 5 years using simple interest

The amount that would be in the account = amount deposited + interest earned on deposit

interest earned on deposit can be determined by determining the simple interest

Simple interest = amount deposited x time x interest rate

1250 x 0.069 x 5 = 431.25

Amount that would be in her account after 5 years = 1250 + 431.25 = 1681.25

Sheril's money is higher by - 1681.25 - 1205.93 = 475.32