Amy, SBD Bank is going to make .08(2000) + 4(.04)(2000) = 160 + 320 = 480 in interest.
A = 2000(1 + .04/12)(5)(12) = 2441.99
David earns more interest with SBD.
David W.
tutor
Amy, that is the formula. The .04 is the rate, compounded 12 times annually for 5 years.
Let's go back to SBD. After the first year, the account balance is 2000(1.08) = 2160.
The 1 in the other equation has to do with the same thing. After the first month, the account balance is 2000(1 + .04/12) = 2006.67. After the second month, the account balance is 2000(1 + .04/12)(1 + .04/12) = 2000(1 + .04/12)2 = 2013.36, etc.
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09/08/16
Amy S.
Alright, thanks! :)
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09/10/16
David W.
tutor
The 1 is in there because every time interest is calculated, it's on the principal and the already gained interest. If interest was just calculated on the interest, we wouldn't need the 1.
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09/10/16
Amy S.
Yup! Thanks!
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09/11/16
Amy S.
09/08/16