Patrick and Brooklyn are making decisions on their bank accounts. Patrick wants to put money in an account that has a higher interest rate but only gains interest for a short period of time. Brooklyn wants to put the money in an account with a lower interest rate, but it gains interest for a longer period of time. Explain which method will result in more money.

Question

pixiedust1 · Answer

Let's think about this.  Imagine putting $10 into a bank.  One account makes 5% for one year, and then it stops.  The other account, in which you would deposit $10, makes only 2% interest, but it does so for 5 years, rather than only one year.  Which would make more money?

pixiedust1 · Answer

The formula for interest is amount*time*percent.

For the one-year @ 5%, it would be 10*1*0.05=$0.50
You would have made $0.50, and that would be it.  

Now for the five-year at @2, it would be 10*5*0.02=$1.00
You would have made $1 in five-years time.

pixiedust1 · Answer

So, which method, as your question asked, resulted in more money?  The account with the higher interest rate for only one year?  Or the account with the lower interest rate for a longer period of time?

We saw that the account with the higher interest rate for a shorter amount of time resulted in half as much money as the account with the small interest rate over a longer period of time.  So, based on what I said, what do YOU think the answer should be?

anonymous · Answer

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