Luke deposits $3,500 into each of two savings accounts.
Account I earns 3% annual simple interest.
Account II earns 3% interest compounded annually.
Luke does not make any additional deposits or withdrawals. What is the sum of the balances of Account I and Account II at the end of 4 years?
Thats incorrect You are being to specific its 4359.28
For Account I, the simple interest earned after 4 years would be:
Interest = Principle * Rate * Time
= $3500 * 0.03 * 4
= $420
So, the balance of Account I after 4 years would be:
Balance = Principle + Interest
= $3500 + $420
= $3920
For Account II, the compound interest earned after 4 years would be:
Balance = Principle * (1 + Rate)^Time
= $3500 * (1 + 0.03)^4
= $3500 * (1.03)^4
= $3500 * 1.1255
= $3939.25
So, the sum of the balances of Account I and Account II at the end of 4 years would be:
$3920 + $3939.25 = $7859.25