Question

The Continental Bank advertises capital savings at 6.6% compounded annually, while TD Canada Trust offers premium savings at 6.5% compounded monthly. Suppose you have $2,000 to invest for two years. What is the difference in the amount of interest?

Select one:

a. 4.00

b. 4.04

c. 4.17

d. 4.08

Answer 1

Answer:

The difference in the amount of interest is about $4.146.

Step-by-step explanation:

Given information: Principal = $2000, time = 2 year.

The formula for amount is

$A=P(1+\frac{r}{n})^{nt}$

where, P is principal, r is rate of interest, n is number of times interest compounded in an year and t is time in years.

The Continental Bank advertises capital savings at 6.6% compounded annually.

$A=2000(1+\frac{0.066}{1})^{(1)(2)}=2272.712$

The interest is

$I_1=A-P=2272.712-2000=272.712$

D Canada Trust offers premium savings at 6.5% compounded monthly.

$A=2000(1+\frac{0.065}{12})^{(12)(2)}=2276.85786593\approx 2276.858$

The interest is

$I_2=A-P=2276.858-2000=276.858$

Difference in the amount of interest is

$Difference= I_2-I_1=4.146$

The difference in the amount of interest is about $4.146.