Question

First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually. If you made a deposit of $15,000 in each bank, how much more money would you earn from your Second City Bank account at the end of 8 years? (

Answer 1

Difference= $1,707.72

Step-by-step explanation:

Giving the following information:

First City Bank pays 6 percent simple interest on its savings account balances

Second City Bank pays 6 percent interest compounded annually.

Investment= $15,000

n= 8

To calculate the future value of investing in First City, we need to use the following formula:

FV= PV*(1+i*n)

FV= 15,000*(1+0.06*8)

FV= $22,200

To calculate the future value of investing in Second City, we need to use the following formula:

FV= PV*(1+i)^n

FV= 15,000*(1.06^8)

FV= $23,907.72

The difference between banks:

Difference= 23,907.72 - 22,200= $1,707.72