Question

Xavier will deposit $1,530 in an account that earns 6% simple interest every year. Henry will deposit $1,500 in an account that earns 8% interest compounded annually. The deposits will be made the same day, and no additional money will be deposited or withdrawn from the account. Which statement about the balances of each account at the end of 3 years is true?

Answer 1

Explanation:

At the end of 3 years, the statement that is true about the balances of each account is that Henry's account with compound interest will have a higher balance than Xavier's account with simple interest.

To calculate the balance for each account, we can use the following formulas:

For Xavier's account with simple interest:

Balance = Principal + (Principal Interest Rate Time)

Balance = $1,530 + ($1,530 * 0.06 * 3)

Balance = $1,530 + ($275.4)

Balance = $1,805.4

For Henry's account with compound interest:

Balance = Principal (1 + Interest Rate)^Time

Balance = $1,500 (1 + 0.08)^3

Balance = $1,500 * (1.08)^3

Balance = $1,500 * 1.259712

Balance = $1,889.57

Therefore, Henry's account will have a higher balance at the end of 3 years, with a balance of approximately $1,889.57, while Xavier's account will have a balance of approximately $1,805.4.