Question

Tamika has $2,000 she wants to save. She has two options:

She could save at a bank for 3 years with a fixed simple interest rate of 9%.
She could save at a credit union for 3 years with an 8.8% fixed interest rate compounded annually.
Which answer correctly compares the total return Tamika would receive with the simple interest from the bank and the compounded interest from the credit union?

(1 point)

After 3 years, Tamika would receive $180 in simple interest from the bank or $584.84 in compound interest from the credit union.

After 3 years, Tamika would receive $584.84 in interest from both the bank and the credit union.

After 3 years, Tamika would receive $540 in simple interest from the bank or $575.83 in compound interest from the credit union.

After 3 years, Tamika would receive $540 in interest from both the bank and the credit union.

Answer 1

Correct choice: "After 3 years, Tamika would receive $540 in simple interest from the bank or $575.83 in compound interest from the credit union."

Work:
- Simple interest = P·r·t = 2000·0.09·3 = $540.
- Compound amount = 2000·(1.088)^3 ≈ 2000·1.287913472 = $2,575.83, so interest ≈ $2,575.83 − $2,000 = $575.83.