Question

Sunshine Bank offers 6% simple interest on deposits. Tangerine Bank offers 5% interest compounded annually. State the difference in final balances if $2000 is deposited in each bank for 2 years

A.$202.80
B.$35
C.$25
D$5

Answer 1

Sunshine Bank,

Si = PRT/100 = 2000x2x6/100 = $ 240

Amount = $ 2000+$ 240 = $ 2240.

Tangerine Bank,

Amount =$p {(1 + \frac{r}{100} )}^{2} \\ =2000 {(1 + \frac{5}{100}) }^{2} \\= 2000 \times \frac{105}{100} \times \frac{105}{100} \\= 2000 \times \frac{21}{20} \times \frac{21}{20} \\ =5 \times 21 \times 21 \\ =5 \times 441 \\= 2205$

Difference $ 2240 - $ 2205 = $ 35.

Option B. is Correct.