Question

Jackie invests $1,000 in an account that earns 5% simple interest. Amber invests $800 in an account earning 8% interest compounded annually. Who will have earned more interest after 3 years? How much more?

Answer 1

The equation for simple interest is : Growth) y = a(1+r)^x decay) y = a(1-r)^x

the equation for compound interest is always : B = P(1+r/n)^nt yes i know its kinda complicated but you'll get used to it.

NOTE: P is the amount you start with [for jackie its 1000 and for amber its 800] and r is the percent you get but in decimal form so if its 5% you would put 0.05 for the r. n is how many times a year (so if its annually its once a year if its quarter annually than its 4 times a year etc.). And x is always for how long (in this instance x would be 3 years)

So now we just plug in all these numbers in:

Jackie: 1000(1+0.05)^3 and just solve that equation. I'll do it for you :)
1000(1.05)^3 

1.05^3= 1.157625

1000(1.157625) = 1157.625 (since we are talking about money we round to the nearest hundreth)        $1,157.63




Amber: this is the hard one... plug the #'s in

800(1+0.08/1)^1x3
800(1.08)^3
1.08^3 = 1.259712

800(1.259712) = 1007.7696 (remember... money rounds to hundreth) $1007.77

So final answer... jackie makes more more money... $149.86 more

Hope this helped good luck in the future!