Scott has $4,800 that he wants to invest for 3 years. He can invest this amount at his credit union and earn 4 percent simple interest. Or, he can open an account at Trust Bank and earn 3.65 percent interest, compounded annually. If he decides to invest at Trust Bank for 3 years, he will:
A) earn $15.02 more than if he had invested with his credit union.
B) earn $30.98 less than if he had invested with his credit union.
C) earn the same amount as if he had invested with the credit union.
D) have a total balance of $4,992 in his account after one year.
E) have a total balance of $4,876 in his account after one year.

Question

Quizplus · Accepted Answer

The simple interest at the credit union is $4,800 * 0.04 * 3 = $576. The total amount is $4,800 + $576 = $5,376. At Trust Bank, the compound interest is $4,800 * (1 + 0.0365)^3 ≈ $5,345.02. The difference is $5,376 - $5,345.02 = $30.98, so he earns $30.98 less at Trust Bank.

Scott Has $4,800 That He Wants to Invest for 3