5 of 10
No
Luke deposits $3.500 into each of two savings accounts.
• Account I earns 3% annual simple interest
• Account I eams 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 it at the end of 4 years?
A $7.859.28
B $3.920.00
C $3.939.28
D $4,359.28
To calculate the balance of Account I at the end of 4 years with simple interest, we use the formula:
Balance = Principal + (Principal * Rate * Time)
The principal is $3,500, the rate is 3%, and the time is 4 years:
Account I balance = $3,500 + ($3,500 * 0.03 * 4) = $3,500 + ($420) = $3,920
To calculate the balance of Account II at the end of 4 years with compound interest, we use the formula:
Balance = Principal * (1 + Rate)^Time
The principal is $3,500, the rate is 3%, and the time is 4 years:
Account II balance = $3,500 * (1 + 0.03)^4 = $3,500 * (1.03)^4 = $3,500 * 1.125508 = $3,939.28
Therefore, the sum of the balances of Account I and Account II at the end of 4 years is:
Sum = $3,920 + $3,939.28 = $7,859.28
So the correct answer is option A, $7,859.28.