Question

If you put $6,000 in a saving account that pays interest at the rate of 3% compounded annually, how much will you have in 5 years? (Hint: Use the future value formula.) How much interest will you earn during the 5-year period? If you put $6,000 each year into a savings account that pays interest at a rate of 4% a year, how much would you have after 5 years? Please explain your answers

Answer 1

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If We invest that $6000 in saving bank account @3 p.a then we will have

=6000(1+3/100)5

=$6000(1.03)^5

=$6000(1.1593)

=$6955.8

Interest earned during the time=$(6955.8-6000)=$955.8

If we put that amount @4 % interest then we will have

=$6000(1+4/100)^5

=$6000(1.04)^5

=$6000(1.2167)

=$7300.2

as we can see@3% interest rate we can earn 955.8 and @ 4% Interest rate we can earn ($7300.2-6000) 1300.2 its better to invest @4 % interest rate.