Anne and Michael both put $\$ 5000$ in a savings account. Anne gets $8 \%$ compounded monthly. In Michael's account, the interest is compounded annually. Two years later the amount in Anne's account is exactly the same as the amount in Michael's account. What can you conclude about the interest rate for Michael's account?
A) It is less than $8 \%$.
B) It is greater than $8 \%$.
C) It is equal to $8 \%$.
D) There is not enough information to determine whether it is greater or less than $8 \%$.

Question

Quizplus · Accepted Answer

Since Anne's interest is compounded monthly and Michael's annually, for their final amounts to be the same, Michael's annual interest rate must be higher than Anne's monthly compounded 8% to compensate for the effect of compounding.

Anne and Michael Both Put $5000\$ 5000$5000 In a Savings Account 8%8 \%8%

Anne and Michael Both Put $\$ 5000$ In a Savings Account $8 \%$