The amount is closets to the difference in the interest earned in each account at the end of 5 years is $275.00
A bank offers two different types of interest on savings accounts.
R=5.5%, P=$1000, T=5 yrs
Account one pays 5.5% simple interest.
Account two pays 5% interest compounded annually.
deposit = 1000$
What is the formula for the simple interest
[tex]I=PRT/100[/tex].....(1)
I=$275.00 for the account one
Therefore
The closet to the simple interest earned in 5 years is $275.00.
The interest earned and be determined using the compound interest formula as follows:
What is the formula for compound interest
[tex]Compound interest = P(1 + R)^T - P[/tex]....................... (2)
Where;
P = Principal = $1,000
R = interest rate = 5%, or 0.05
T = term = 5
Substituting the values into equation (2), we have:
[tex]Compound interest \\\\= $1,000(1 + 0.05)^5 - $1,000 \\\\= ($1,000 * 1.05^5) - $1,000\\\\ = ($1,000 * 1.2762815625) - $1,000 \\\\=$1,276.28 - $1,000 \\\\= $276.28[/tex]
Therefore,
The closet to the compound interest earned in 5 years is $276.28.
Therefore
The amount is closets to the difference in the interest earned in each account at the end of 5 years is $275.00
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