Question

Whitney deposits $9,000 for two years. She compares two different banks. State Bank will pay her 1% compounded monthly. King Savings will pay her 0.85% compounded continuously. a) How much interest does State Bank pay? b) How much interest does King Savings pay? c) Which bank pays higher interest? d) How much higher?​

Answer 1

a. $ 381.969,

b. $ 369.171,

c. Kings Savings

d. Reliability.

Explanation:

∵ Amount formula in compound interest,

And, amount formula in continuously,

,

Where,

P = principal amount,

r = rate per periods,

t = number of periods,

a. In State bank,

P = $ 9000, r = 2.1% = 0.021, t = 2 years,

Also, interest earned compound annually,

Thus, amount,

So, interest earned = A - P = 9381.969 - 9000 = $ 381.969,

b. In Kings Savings,

P = $ 9000, r = 2.01% = 0.0201, t = 2 years,

Also, interest earned compound continuously,

Thus, amount,

So, interest earned = A - P = 9369.171 - 9000 = $ 369.171,

c. ∵ 369.171 > 381.969

Thus, King saving pays higher interest.

d. Since, the other factors might affect Whitney's choice besides interest would be reliability.