Question

Three friends decide that they each want to be able to buy a new boat in five years.

Vanore puts $1,000 in a savings account with a simple interest rate of 4.5%.

Keir invests $1,200 in a standard savers account with a simple interest rate of 4%.

Omar invests $950 in a junior achievers account with a 6% annual compound interest rate.

Who will have the most money to spend on a new boat at the end of the five years? Use the formula I = P r t for simple interest and A = P (1 + r) Superscript t for compound interest. Round to the nearest dollar.
Keir will have $1,440, the most money for the boat.
Vanore will have the most money, $1,271, for the boat.
Omar will have the most money, $1,271, for the boat.
Vanore will have $1,440, the most money for the boat

Answer 1

Compute each final amount:

- Vanore (simple interest): I = P r t = 1000(0.045)(5) = 225, so A = 1000 + 225 = $1,225.
- Keir (simple interest): I = 1200(0.04)(5) = 240, so A = 1200 + 240 = $1,440.
- Omar (compound interest): A = 950(1.06)^5 ≈ 950(1.3382256) ≈ $1,271.

Keir will have the most: $1,440.