Question

Aerial’s grandmother gave her 5500 to save for her collage 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 payed

Account B I 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 as the money firm the two accounts will be combined.

If Arial is planning on leaving the money in the account for 4 years and then withdrawing all funds, then the account______ is the better choice earning her ______ more.

Answer 1

Account B is the better choice for earning her (6751.25 - 6710) = $41.25 more.

Explanation:

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

Therefore, after 4 years the principal $5500 will grow up to
`5500( 1 + (5.5 * 4)/(100) ) = 6710` dollars.

Now, 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.

Therefore, after 4 years the principal $5500 will grow with a simple interest of 4.5% and the bonus $250 will earn the same rate of simple interest for 1 year.

Hence, the total sum will become
`5500(1 + (4.5 * 4)/(100)) + 250( 1 + (4.5)/(100)) = 6490 + 261.25 = 6751.25` dollars.

Therefore, account B is the better choice for earning her (6751.25 - 6710) = $41.25 more. (Answer)