First City Bank pays 6 percent simple interest on its savings account balances,

Question

First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually.

If you made a $57,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually.

Explanation / Answer

Interest:

First City Bank:

Interest = Principal x rate of Interest x Time

             =$57,000 x 6% x 10

          =$34,200

Second City Bank:

Amount = P x ( 1+r/100 )n

P= Principal=$57,000

r=rate of Interst= 6% or 0.06

n= no of years =10

    =57,000 x (1+ 6/100)10

=57,000 x (1+0.06)10

=57,000 x 1.7908477

= 102,078.32

Interest = Amount – Principal

               =102,078.32-$57,000

                =$45,078

The Interest of More money can be earned from Second City Bank=$45,078- $34,200=   $10,878

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