Gabby deposits $1,500 into each of two savings accounts.
Account I earns 4% annual simple interest.
Account II earns 4% interest compounded annually.
Gabby 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?
$3400.00
$3600.00
$3,494.79
$1754.79
The formula for simple interest is:
Final balance = Principal x (1 + interest rate x time)
For Account I:
Final balance = $1500 x (1 + 0.04 x 4) = $1500 x 1.16 = $1740
For Account II, to calculate compound interest you can use the formula:
Final balance = Principal x (1 + interest rate)^time
Final balance = $1500 x (1 + 0.04)^4 = $1500 x 1.16985856 = $1754.79
Therefore, the sum of the balances of Account I and Account II at the end of 4 years is $1740 (Account I) + $1754.79 (Account II) = $3494.79
Therefore, the correct answer is $3,494.79.