Monica deposits $300 into a savings account that pays a simple interest rate of 4.1%. Paul deposits $400 into a savings account that pays a simple interest rate of 3.5%. Monica says that she will earn more interest in 1 year because her interest rate is higher. Is she correct? Justify your response.
To determine who will earn more interest in 1 year, we can calculate the interest earned by each person using the formula for simple interest:
Simple Interest = Principal x Rate x Time
For Monica:
Principal = $300
Rate = 4.1%
Time = 1 year
Simple Interest = $300 x 0.041 x 1 = $12.30
For Paul:
Principal = $400
Rate = 3.5%
Time = 1 year
Simple Interest = $400 x 0.035 x 1 = $14.00
Therefore, in 1 year, Paul will earn more interest ($14.00) compared to Monica ($12.30). Monica is incorrect in saying that she will earn more interest because her interest rate is higher. It is the combination of the principal amount, interest rate, and time that determine how much interest will be earned. In this case, Paul's higher principal amount outweighs the slightly lower interest rate, resulting in him earning more interest.