Question

Simply Savings Bank offers a simple interest rate of 10% per year. Compound Capital Bank offers an interest rate of 8% per year compounded continuously. If Shakira plans to invest $200 for 5 years, which bank should she choose?

Answer 1

Answer:

She should choose the Simply Savings Bank, since she'll earn around 2 dollars more in comparison to the other bank.

Step-by-step explanation:

A simple interest rate account yields a return that follows the formula below:

$return = C + C*r*t$

Where C is the invested money, r is the interest rate and t is the elapsed time in years.

While a compound interest rate account yields a return that follows the formula below:

$return = C*e^{r*t}$

Therefore for the Simply Saving Bank she'll earn:

$return_{1} = 200 + 200*0.1*5\\return_{1} = 200 + 100\\retrun_{1} = 300$

While the Capital Bank she'll earn:

$return_2 = 200*e^{0.08*5}\\return_2 = 200*e^{0.4}\\return_2 = 200*1.49182\\return_2 = 298.364$

She should choose the Simply Savings Bank, since she'll earn around 2 dollars more in comparison to the other bank.