My question will be down below

Question

Steve has $1500 to invest for one year.  a fullerton college credit union account pays 4.5% annual simple interest and a Bank of America account pays 4% interest compounded quarterly. Determine which account would pay more interest And by how much?

Answer 1

Note that t=1 since we are only doing 1 year.

 

Simple interest:  I = prt

I = 1500(.045) = $67.50

 

Compound interest:

A = p(1+r/n)^nt

A = 1500(1 + .04/4)⁴

A = 1500(1.01)⁴

A = 1560.91

Interest = 1560.91 - 1500 = $60.91

 

Simple interest at 4.5% is more by 67.50-60.91 = $6.59