Second Union Bank pays 5 percent simple interest on its savings account balances, whereas Third Street Bank pays 5 percent compounded annually. If you made a $12,000 deposit in each bank, how much more money would you earn from your Third Street Bank account at the end of 15 years?
A) $3,602.89
B) $3,947.14
C) $4,008.01
D) $4,221.15
E) $4,414.14

Question

Quizplus · Accepted Answer

Using the simple interest formula, after 15 years, Second Union Bank would give you: 
$12,000 x 0.05 x 15 = $9,000 in interest.

Using the compound interest formula, after 15 years, Third Street Bank would give you: 
$12,000 x (1 + 0.05)^15 - $12,000 = $12,947.14 in interest.

The difference between the two is $12,947.14 - $9,000 = $3,947.14. Therefore, you would earn $3,947.14 more from Third Street Bank.

Second Union Bank Pays 5 Percent Simple Interest on Its