You place $4,000.00 in a bank account with an interest rate of 5.25% APR and another $2,000.00 in an account with an interest rate of 6.00% APR. a. How much interest will be earned for each account on the original principal in 6 months? b. What is the difference in the amount of interest earned? c. Which account has your money working for you the best? Be sure to include in your response: the steps you followed to complete your computations the final answers to each question the mathematical reasoning for the answer to “c”
a.
For the first account with an interest rate of 5.25% APR, the interest earned in 6 months can be calculated using the formula:
Interest = Principal * Rate * Time
Interest = $4,000 * 0.0525 * (6/12) = $105.00
For the second account with an interest rate of 6.00% APR, the interest earned in 6 months can be calculated using the same formula:
Interest = Principal * Rate * Time
Interest = $2,000 * 0.06 * (6/12) = $60.00
b.
The difference in the amount of interest earned can be calculated by subtracting the interest earned on the second account from the interest earned on the first account:
Difference = $105.00 - $60.00 = $45.00
c.
To determine which account has the money working best, we compare the interest earned on each account.
The interest earned on the first account is $105.00, while the interest earned on the second account is $60.00.
Therefore, the money in the first account is working better as it earns a higher amount of interest.
Note: APR stands for Annual Percentage Rate, and dividing by 12 in the calculations adjusts the time to 6 months.