Question

5. Trisha plans to invest $1,800.00 in a savings account. Savings account 1 earns 4% simple interest and savings account 2 earns 4% interest compounded quarterly. If she plans to deposit the $1,800.00 and leave it in the account for 2 years, in which savings account would she earn more interest? *
savings account 1
savings account 2
The interest earned in both savings accounts will be the same.

Answer 1

The interest earned in both savings account will be the same.

Given:
Principal = 1,800
interest rate = 4%
term = 2 years

Savings Account 1 : simple interest
S.I = Principal x rate x term
     = 1,800 x 0.04 x 2years
S.I = 144

Savings Account 2 : compound interest. Compounded quarterly for 2 years. The exponent is the number of times the interest is compounded.
4% is the annual rate. Since it is compound quarterly, 4% divide by 4 quarter is 1% per quarter.

C.I = Pricipal x (1+r/4)^t
C.I = 1,800 x 1.01⁸
     = 1,800 x 1.08
C.I = 1,944

1,944 - 1800 = 144 interest earned.