Interest Word problem

Question

You decide to invest some money in two different money market accounts. One account (account A) pays 3% interest. The other account (account B) pays only 2% interest but offers a $20 bonus for signing up for the account paid at the end of the two year period. Write an expression for each account to determine the amount of interest (and bonus) you would earn after two years. Use y to represent interest (and bonus) and x to represent the principle invested. Label each equation. Hint: This should be fairly simple if you know the formula for simple interest!

Answer 1

P(1+r)^t where P is the principle, r is the interest rate, and t is the time.

So P = x, r = 0.03 for account A and 0.02 for account B, and t = 2

 

account A:   y = x*(1.03)^2 = 1.0609X

 

account B:  y = x*(1.02)^2 + 20 <-- as the bonus is paid at the end of the 2 year period, it is NOT included in the principle

 

                     = 1.0404X+ 20

 

Although not asked in the problem, if you set them equal to each other and solve, they are the same at $975.61

after which point Account A gives the better ROI