Question

1- Second Union Bank pays 5 percent simple interest on its savings account balances, whereas Third Street Bank pays 5 percent compounded annually. If you made a $12,000 deposit in each bank, how much more money would you earn from your Third Street Bank account at the end of 15 years?

2- Second Union Bank pays 5 percent simple interest on its savings account balances, whereas Third Street Bank pays 5 percent compounded annually. If you made a $12,000 deposit in each bank, how much more money would you earn from your Third Street Bank account at the end of 15 years?

Answer 1

The amount of money from Second Union Bank is computed as follows:

= Amount of deposit + Amount of deposit x interest rate x time

= $ 12,000 + $ 12,000 x 5% x 15

= $ 12,000 + $ 9,000

= $ 21,000

The amount of money from Third Street Bank is computed as follows:

= Amount of deposit x (1 + r)ⁿ

= $ 12,000 x 1.05¹⁵

= $ 24,947.13815

So, the excess amount that we will have by investing in Third Street Bank will be as follows:

= $ 24,947.13815 - $ 21,000

= 3,947.14 Approximately

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