Question

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

Iliana puts $500 in a savings account with a simple interest rate of 4%.

Joann invests $515 in a standard savers account with a simple interest rate of 3%.

Cyndy invests $500 in a junior achievers account with a 3.5% compound interest rate.

Using the formula I = P r t for simple interest and A = P (1 + r) Superscript t for compound interest, who will have the most money to spend on a new bike at the end of the four years?
Joann will have the most money, $576.80 for the bike
Cyndy will have the most money, $580.00 for the bike.
Cyndy will have $576.80, the most money for the bike.
Iliana will have $580.00, the most money for the bike.

Answer 1

Compute each final amount after 4 years:

- Iliana (simple interest 4%): I = 500(0.04)(4) = 80, so A = 500 + 80 = $580.00
- Joann (simple interest 3%): I = 515(0.03)(4) = 61.80, so A = 515 + 61.80 = $576.80
- Cyndy (compound 3.5%): A = 500(1.035)^4 ≈ 500(1.147523) ≈ $573.76

Iliana will have the most money: $580.00.