Question

Anagrace has $200 to invest for 10 years. If her local bank pays 7% simple interest on an investment but a national bank pays 5% interest compounded annually, which is the better choice? How much money would she have after 10 years if she chose the local bank?

Answer 1

Local bank: 7% simple interest, so A = amount = $200+$200*0.07*10 = $340

National bank: 5% interest comp. annually, so A = $200(1.05)^10 = $325.78

Anagrace would have accumulated $340 after ten years.