Question

Jenny invests $20,000 in an account earning 4.5% interest, compounded annually. Cam invests $20,000 in an account earning 6.5% interest, compounded annually. Given that no additional deposits are made, compare the balances of the two accounts after 5 years. (round to the nearest dollar)

A) Cam has $2,082 more in his account than Jenny.
B) Jenny has $2,082 more in her account than Cam.
C) Cam has $2,478 more in his account than Jenny.
D) Jenny has $2,478 more in her account than Cam.

Answer 1

Cam has $2,478 more in his account than Jenny.

Jenny = 20,000(1 + .045)5 ≈ $24,924

Cam = 20,000(1 + .065)5 ≈ $27,402

$27,402 − $24,924 = $2,478

Answer 2

Compound interest is given by:
A=P(1+r/100)^n
Amount Jenny earned after 5 years will be:
A=20000(1+4.5/100)^5
A=$24,923.64

Amount Cam earned:
A=20000(1+6.5/100)^5
A=$27,401.73

Comparing the two earnings we get:
27401.73-24923.64
=$2,478.09
We conclude that Cam had $2478 more money in the account than Jenny.

Answer: C