Scott has $4800 that he wants to invest for 3 years.He can invest this amount at his credit union and earn 4 per cent simple interest;or he can open an account at Trust Bank and earn 3.65 per cent interest,compounded annually.If he decides to invest at Trust Bank for 3 years,he will:
A)earn $15.02 more than if he had invested with his credit union
B)earn $30.98 less than if he had invested with his credit union
C)earn the same amount as if he had invested with the credit union
D)have a total balance of $4992 in his account after one year
E)have a total balance of $4876 in his account after one year

Question

Quizplus · Accepted Answer

If Scott invests at his credit union, he will earn simple interest of:

I = P*r*t = 4800*0.04*3 = $576

So, after 3 years, his total balance will be:

A = P + I = 4800 + 576 = $5376

If Scott invests at Trust Bank, he will earn compound interest of:

A = P*(1+ r/n)^(n*t) = 4800*(1+0.0365/1)^(1*3) = $5386.95

The difference in the balances between the two options is:

5386.95 - 5376 = $10.95

So, Scott would earn $10.95 more by investing with Trust Bank. Therefore, option B is the best choice.

Scott Has $4800 That He Wants to Invest for 3