Question

Melvin Indecision has difficulty deciding whether to put his savings in Mystic Bank or Four Rivers Bank. Mystic offers 10% interest compounded semiannually. Four Rivers offers 8% interest compounded quarterly. Melvin has $10,000 to invest. He expects to withdraw the money at the end of 4 years.
Calculate interest for each bank and identify which bank gives Melvin the better deal? (Please use the following provided Table.) (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)
Mystic Four Rivers Better deal
Interest $ $ (Click to select)Mystic BankFour Rivers Bank

Answer 1

$4,775 in mystic interest

Interest from Four Rivers $3,728

better offer (Mystic)

How does compound interest work?

By starting early, students can benefit from the "compound interest" magic. The interest you receive is referred to as compound interest. Using simple math, you can see how this works: if you have $100 and it earns 5% interest annually, you will have $105 at the end of the first year. You'll have $110.25 at the conclusion of the second year. You received $5 on the initial $100 deposit in addition to $0.25 on the $5 in interest, for a total of $5. Initially, 25 cents might not seem like much, but it soon adds up.

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