Question

1. find the balance after one year if you deposit all the money into an account that pays $2.50 in simple interest each month (this is a simple equation where the amount of interest stays the same each month).
2. Find the balance after one year if you deposit all the money into an account that pays 5% APR with monthly compounding. ​

Answer 1

1. Balance after 1 year with simple interest= 600 + (2.5 x 12) = 600 + 30 = $630

2. Balance after 1 year with compounded interest = P ( 1 + $\frac{r}{n}$$)^{nt}$

= 600 ( 1 + $\frac{0.05}{12}$$)^{12}$= 600 (1.0511) = $630.66 = approx. $630