Using the simple interest formula, the interest Ben will earn in Account I after 2 years is:
$1,750 x 0.0275 x 2 = $96.25
Using the compound interest formula, the interest Ben will earn in Account II after 2 years is:
$1,750 x (1 + 0.0275)^2 - $1,750 = $97.57
The difference between the two amounts is:
$97.57 - $96.25 = $1.32 (rounded to the nearest cent)
Therefore, the answer is B. $1.32
Ben deposits $1,750 into each of two savings accounts.
• Account I earns 2.75% annual simple interest.
• Account II earns 2.75% interest compounded annually.
Ben does not make any additional deposits or withdrawals. Which amount is closest to the difference between the interest Ben will earn in Account I and the interest Ben will earn in Account II at the end of 2 years?
A. $96.25
B. $1.32
C. $97.57
D. $193.82
1 answer
1 answer