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Gabriel deposits $2,500 into each of two savings accounts.

• Account I earns 4% annual simple interest.
• Account II earns 4% interest compounded annually.

Gabriel does not make any additional deposits or withdrawals. What is the sum of the balances of Account I and Account II at the end of 3 years?

2 Answers

4 votes

Answer:

$5,612.16

Explanation:

User Bay
by
7.9k points
6 votes

Answer:

$5,612.16

Explanation:

Part 1) Account I earns 4% annual simple interest.

we know that

The simple interest formula is equal to

where

A is the Final Investment Value

P is the Principal amount of money to be invested

r is the rate of interest

t is Number of Time Periods

in this problem we have

substitute in the formula above

Part 2) Account II earns 4% interest compounded annually.

we know that

The compound interest formula is equal to

A=P(1+rt)

where

A is the Final Investment Value

P is the Principal amount of money to be invested

r is the rate of interest in decimal

t is Number of Time Periods

n is the number of times interest is compounded per year

in this problem we have

t=3 years

p=$2,500

r=4%=4/100=0.04

substitute in the formula above

A=2,500(1+0.04 * 3)

A=2,500 (1.12)

A=$2,800

Part 3) What is the sum of the balances of Account I and Account II at the end of 3 years?

Sum the two final investment

$2,800 + $2,812.16 = $5.612.16

User Steveo
by
8.6k points

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