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Huan deposited $850 into a collegesavings account earning 4.8% interestcompounded annually. He also deposited$850 into a second account earning 4.8%simple interest. He made no additionaldeposits. After 10 years, which account earnedmore interest? How much more?

A The account with compounded interest earned
$1,0004.10 more interest.
B The account with the simple interest earned
$1,004.10 more interest.
C The account with the simple interest earned
$100.41 more interest.
D The account with compounded
interest earned $100.41 more
interest.

I am really having trouble with this and cant guess a thing.

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1 answer

  1. Compounded Int.

    P1 = Po(1+r)^n

    r = 4.8%/100 = 0.048 = Annual % rate expressed as a decimal.

    n = 1Comp./yr. * 10Yrs. = 10 Compounding
    periods.

    P1 = 850(1.048)^10 = $1358.41

    Simple Int.

    P2 = Po + Po*r*t = 850 + 850*0.048*10 =
    $1258.00

    P1-P2 = 1358.41 - 1258 = $100.41

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