Question

First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually. If you made a deposit of $12,500 in each bank, how much more money would you earn from your Second City Bank account at the end of 8 years

Answer 1

$8000

= $10,636.63

Step-by-step explanation:

Simple interest = P x R x T

P = amount

R = interest rate

T = time

= $12,500 × 0.08 x 8 = $8000

For compound interest:

FV = P (1 + r)^n

FV = Future value

P = Present value

R = interest rate

N = number of years

$12500(1.08)^8 = $23,136.63

Interest = $23,136.63 - $12,500 = $10,636.63

I hope my answer helps you