Question

Gary deposits $1,500 into each of two savings accounts. Account I earns 5% annual simple interest. Account II earns 5% interest compounded annually. Gary 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 4 years?

Answer 1

• $3623.26

Explanation:

Given

• Each deposit = $1500
• Interest rate= 5%
• Time = 4 years
• Compound number = annual

Simple interest account

• B = 1500*(1 + 4*0.05) = 1500*1.2 = $1800

Compound interest account

• B = 1500*(1 + 0.05)^4 = $1823.26

Total balance

• $1800 + $1823.26 = $3623.26