Let's calculate the interest earned by each account for the first three years.
1) Simple Interest Account:
Year 1:
Interest earned = Principal * Rate = $20,000 * 2% = $400
Year 2:
Interest earned = Principal * Rate = $20,000 * 2% = $400
Year 3:
Interest earned = Principal * Rate = $20,000 * 2% = $400
Total interest earned after three years = $400 + $400 + $400 = $1,200
2) Compound Interest Account:
Year 1:
Interest earned = Principal * Rate = $20,000 * 2% = $400
Year 2:
Interest earned = (Principal + Year 1 Interest) * Rate = ($20,000 + $400) * 2% = $408
Year 3:
Interest earned = (Principal + Year 2 Interest) * Rate = ($20,000 + $408) * 2% = $416.16
Total interest earned after three years = $400 + $408 + $416.16 = $1,224.16
Conclusion:
After comparing the interest earned by each account for the first three years, we can see that Jim earns more interest with the compound interest account.
And deposits $20,000 into an account that pays simple interest at a rate of 2% per year Jim deposits $20,000 into an account that also pays 2% interest per year but it is compounded annually find the interest and and Jim earn during each of the first three years then decide who earns more interest for each year assume there are no withdrawals and no additional deposits
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