Question

First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually.
  
If you made a deposit of $8,500 in each bank, how much more money would you earn from your Second City Bank account at the end of 11 years?

Answer 1

Answer is: $3838.93

First City Bank investment value after 11 years (Simple interest):

.

Future value from first City Bank = Principal x (1 + rate x years)

Future value from first City Bank = 8500 x (1 + 8% x 11)

Future value from first City Bank = $15980

Now,

Second City Bank investment value after 11 years (compounded interest annually):

Future value from second City Bank = Principal x (1 + Rate)^Years

Future value from second City Bank = 8500 x (1 + 8%)^11

Future value from second City Bank = $19818.93

.

How much more we would earn from Second City Bank:

Additional earnings from 2^nd City Bank = Future value from second City Bank - Future value from first City Bank

Additional earnings from 2^nd City Bank = $19818.93 - $15980

Additional earnings from 2^nd City Bank = $3838.93