Question

Who will have the most money to spend on a new boat at the end of the five years? Use the formula I = P r t for simple interest and A = P (1 + r) Superscript t for compound interest. Round to the nearest dollar.

Answer 1

Answer:

Keir will have the most money to spend on a new boat at the end of the five years; $1,440

Explanation:

Three friends decide that they each want to be able to buy a new boat in five years. Vanore puts $1,000 in a savings account with a simple interest rate of 4.5%. Keir invests $1,200 in a standard savers account with a simple interest rate of 4%. Omar invests $950 in a junior achievers account with a 6% annual compound interest rate. Who will have the most money to spend on a new boat at the end of the five years?

Vanore puts $1,000 in a savings account with a simple interest rate of 4.5%.

Vanore:

I = p * r * t

= 1000 * 0.045 * 5

= $225

I = $225

After 5 years, Vanore will have $1000 + $225

= $1225

Keir invests $1,200 in a standard savers account with a simple interest rate of 4%

Keir:

I = p * r * t

= 1200 * 0.04 * 5

= 240

I = $240

After 5 years, Keir will have $1200 + $240

= $1,440

Omar invests $950 in a junior achievers account with a 6% annual compound interest rate.

Omar:

A = P (1 + r)^t

= 950(1 +0.06)^5

= 950(1.06)^5

= 950(1.3382)

= 1271.1

A = $1,271.1

After 5 years, Omar will have $1,271.1

Keir will have the most money to spend on a new boat at the end of the five years; $1,440