lease help... Tyler has $1000 that he wants to put in a savings account. He wants to save the money for 6 years. After 6 years he plans to take the money out and spend it on college. He looks at two different banks, and they offer him different interest options. Bank A offers Tyler 4% simple interest. How much would Tyler’s investment be worth after 6 years in this account? Show your calculations below. Bank B offers Tyler 3% interest compounded annually. How much would Tyler’s investment be worth after 6 years in this account? Show your calculations below. In which bank should Tyler place the $1000 he is saving for college
Mathematics · High School · Tue Nov 03 2020
Answered on
Given:
Principal Amount ( P ) = $1000
Simple Interest rate ( r ) = 4% or 0.04
Term ( t ) = 6
Compound interest rate ( r ) = 3% or 0.03
Compounded annually ( n ) = 1
Formula for Simple Interest:
A = P( 1 + rt)
Formula for Compound Interest:
A = p (1 + r/n)^(n)(t)
Solution:
In order to determine which bank should Tyler deposit his money, we solve for each bank separately, since bank a offers a simple interest while bank b offers compound interest.
Bank A
A = $1000(1 + (0.04)(6))
A = $1000 (1.24)
A = $1,240
Bank B
A = $1000( 1 + 0.03/1)^(1)(6)
A = $1000( 1.03)^6
A = $1,194.1
Final answer:
Tyler should place his money on Bank A, since it offers a greater amount than Bank B.