Question

Andrew deposits $300 into an account that earns 2% interest each year. After the first year, Andrew has $306 in the account. After the second year, Andrew has $312 in the account, and after the third year, Andrew has $318 in the account.What type of account is this? Explain your reasoning.

Answer 1

Answer:

It is a simple interest account

Step-by-step explanation:

As we might see from the given earnings, the amount of money he earned each year is the same as in the previous year. This means that the amount of money is growing linearly instead of exponentialy. This is characteristic to a simple interest account, which is found by using the formula:

I=Prt

where I = interest earned.

P = principal

r = Interest rate

t = time in years,

if we use this formula to calculate the amount of money earned after t years, we can see it will be the same as the values reported:

I=$300(0.02/year)(1year)=$6

I=$300(0.02/year)(2years)=$12

I=$300(0.02/year)(3years)=$18

So this simple interest account.