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
is the better choice earning her
more.

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 
 is the better choice earning her 
 more.

OLIVER69 · Answer

I would say account A would be better for Aerial who is planning on leaving the money in the account for 4 years and then withdrawing all funds, then account is the better choice earning her more. If she would do account B then after all three years the initial account aw well as the bonus account will be closed as well and the money from the two accounts will be combined. So account A is the right choice.

mikewwe13 · Answer

To determine which account is the better choice for Aerial, we need to calculate the total amount of interest earned by each account over the four-year period.

Account A will pay 5.5% simple interest on the initial deposit of $5,500 for four years:

Interest = Principal x Rate x Time
Interest = $5,500 x 0.055 x 4
Interest = $1,210

So, after four years, the total amount in Account A will be the initial deposit of $5,500 plus the interest earned of $1,210, for a total of $6,710.

Account B will pay 4.5% simple interest on the initial deposit of $5,500 for the first three years, and then an additional 4.5% on the bonus account of $250 for the fourth year:

Interest for first three years = Principal x Rate x Time
Interest for first three years = $5,500 x 0.045 x 3
Interest for first three years = $742.50

At the end of the third year, a bonus account will be opened with $250 and will earn interest at a rate of 4.5% for one year:

Interest for bonus account = Principal x Rate x Time
Interest for bonus account = $250 x 0.045 x 1
Interest for bonus account = $11.25

So, after four years, the total amount in Account B will be the initial deposit of $5,500 plus the interest earned on the initial deposit of $742.50, plus the interest earned on the bonus account of $11.25, for a total of $6,253.75.

Therefore, Account A is the better choice for Aerial, earning her $456.25 more than Account B over the four-year period.