Amanda deposits $10,000 into an account that pays 3% interest per year, compounded annually. Sam deposits $10,000 into an account that also pays 3% per year. But it is simple interest.

Question

Find the interest Amanda and Sam earn during each of the first three years. Then decide who earns more interest for each year. Assume there are no withdrawals and no additional deposits.

Answer 1

Year #1

Amanda:

10000*(1.03)^1 = 10000*1.03 = 10300

10300 - 10000 = 300 in interest

Sam:

I=prt = 10000*0.03*1 = 300 in interest

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Year 2:

10300 * 1.03 = 10609;

10609 - 10300 = 309 in interest

Sam:

10300 + 300 = 10600

SO after 1 year Amanda earns 9 more in interest

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Year 3:

Amanda has

10609 * 1.03 = 10927.27 ,

so 10927 - 10609 = 318.27

while

Sam gets 10600 + 300 = 10900

So Amanda gets 318.27 - 300 = 18.27 more interest