Question

Patrick has $12,000 saved for medical school from gifts and summer jobs. Because the cost of college has risen each year, Patrick knows he needs a savings account that will help him meet these increases. In the 10 remaining years before he receives his medical degree, which of the following would most help Patrick to meet these increases?
A. A checking account
B. A compound interest account
C. A high risk investment
D. A simple interest account

Answer 1

Answer:

B. A compound interest account  

Explanation:

The option that would most help Patrick to meet these increases is the compound interest account

Compound interest accounts are those that calculates interest on the initial principal, which also includes all of the accumulated interest of previous periods of a deposit. Hence compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.

Answer 2

Answer:. A COMPOUND INTEREST ACCOUNT would most help Patrick to meet those increases

Explanation:

Compound interest simply refers to the interest that one earns on the initial principal or deposit and on the interest that continues accumulating.

Compound interest is the interest earned on money that was formerly earned as interest as well. Compounding uses the same concept as the snow - ball effect in growing money.

Normally, compound interest enables a person's savings to increase and grow rapidly or speedily over a period. If an account uses the principle of compound interest, the returns are always added to the initial deposit during the termination of all compounding periods.

Compound interest makes a sums (of money) to grow at faster rates than simple interest.

Since the cost of college has risen each year and Patrick urgently needs a savings account that will help him meet the increases, then he should go for the compound interest account as it is the one that will help grow his money most rapidly.