Question

A bank offers two interest plans Plan A gives you 6% interest compounded annually Plan B gives you 13% annual simple interest you plan to invest $2,000 for the next four years. Which account earns you the most interest (in dollars) after 4 years? How much will you have earned?

Answer 1

Plan B earns more: after 4 years , $2000*(1+0.13*4) = $3040

Answer 2

Plan A gives you 6% interest compounded annually so after 4 years

$2000 becomes $2000*(1.06)^4 = $2524.95

Plan B gives you 13% annual simple interest so after 4 years

$2000 becomes $2000*(1+0.13*4) = $3040

so Plan B earns more