Question

5. Whitney deposits $9,000 for 2 years. She compares two different banks. State


Bank will pay her 2.1% interest, compounded monthly, Kings Savings will pay


her 2.01% interest, compounded continuously. Round to the nearest cent.


a. How much interest does State Bank pay?


b. How much interest does Kings Savings pay?


c. Which bank pays higher interest? How much higher?


d. What other factors might affect Whitney's choice besides interest?

Answer 1

Answer:

a. $ 381.969,

b. $ 369.171,

c. Kings Savings

d. Reliability.

Step-by-step explanation:

∵ Amount formula in compound interest,

$A=P(1+r)^t$

And, amount formula in continuously,

$A=Pe^{rt}$,

Where,

P = principal amount,

r = rate per periods,

t = number of periods,

a. In State bank,

P = $ 9000, r = 2.1% = 0.021, t = 2 years,

Also, interest earned compound annually,

Thus, amount,

$A=9000(1+0.021)^2 = 9000(1.021)^2 = \ 9381.969$

So, interest earned = A - P = 9381.969 - 9000 = $ 381.969,

b. In Kings Savings,

P = $ 9000, r = 2.01% = 0.0201, t = 2 years,

Also, interest earned compound continuously,

Thus, amount,

$A=9000e^{0.0201\times 2} = \ 9369.171$

So, interest earned = A - P = 9369.171 - 9000 = $ 369.171,

c. ∵ 369.171 > 381.969

Thus, King saving pays higher interest.

d. Since, the other factors might affect Whitney's choice besides interest would be reliability.