Question

Jaina and Tomas compare their compound interest accounts to see how much they will have in the accounts after three years. They substitute their values shown below into the compound interest formula. Compound Interest Accounts Name Principal Interest Rate Number of Years Compounded Jaina $300 7% 3 Once a year Tomas $400 4% 3 Once a year. Which pair of equations would correctly calculate their compound interests?

Answer 1

D - Jaina: A = 300(1+0.07)^3, Tomas: A = 400(1+0.04)^3

Answer 2

Formula for compound interest is

Interest = Amount - Principal

Interest = $P(1+r)^{t}$ - P

Where r = rate in percent

t = time in years

For Jaina,

P = $300

r= 7%

t = 3 yrs

So, Interest = $300(1+0.07)^{3}$ - 300

For Tomas

P = $400

r= 4%

t = 3 yrs

So, Interest = $400(1+0.04)^{3}$ - 400

So pair of equations for Jaina and Tomas are

Interest = $300(1+0.07)^{3}$ - 300

Interest = $400(1+0.04)^{3}$ - 400