Question

Aerial's grandmother gave her $5,500.00 to save for her college education. She went to the bank to open a savings account. The bank told her they had two options available.

Account A will pay 5.5% simple interest until the account is closed.

Account B will pay 4.5% simple interest and if the account is left open for longer than 3 years, then at the end of the third year a bonus account will be opened with $250 that also earns 4.5% for the remainder of the time the initial account is open. When the initial account is closed, the bonus account will be closed as well and the money from the two accounts will be combined.
If Aerial is planning on leaving the money in the account for 4 years and then withdrawing all funds, then account (a, or b?) is the better choice earning her ___ more.

note: you must pick account A, or B, and fill in the blank with the appropriate dollar amount.

A.) 18.75
B.) 30.00
C.) 41.25
D.) 208.75
E.) 220.00

Answer 1

step 1: calculate the amount of interest earned from account A

$5,500.00, invested for 4 years, at 5.5% simple interest.

this is simply (amount invested)(number of years)(interest rate as a decimal)

evaluate.

step 2: calculate the amount of interest earned from account B

it says the account earned 4.5% simple interest if the account is left open longer than 3 years (which it is). so use the previous formula to calculate 4.5% simple interest for 4 years on the 5,500 investment.

now, it says at the end of the third year, a bonus account will open (that means it will earn interest for the 4th year only). it has $250 dollars, 4.5% interest simple interest. use the previous formula to calculate the simple interest for **one** year.

add up the two account balances

step 3: compare account A and account B's balances. which one is higher? and by how much? to find that, subtract the higher balance minus the lower balance to find the difference.

Answer 2

Thnx