First City Bank pays 7 percent simple interest on its savings account balances,

Question

First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 7 percent interest compounded annually.

If you made a $64,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 9 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 7 percent interest compounded annually.

Explanation / Answer

Future value after 9 years

First city bank : Future value = $64,000 + $64,000 * 7%* 9 = $64,000 + $40,320 = $104,320

Second city bank: Using financial calcuater, enter N = 9, I/Yr = 7%, PV = $64,000 and press FV key, the answer will be 117,661.39.

More money = 117,661.39.- $104,320 = $13,341.39

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