Gabriel deposits $2,500 into each of two savings accounts.
Account I earns 4% annual simple interest.
Account II earns 4% interest compounded annually.
Gabriel 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 3 years?
Gabriel deposits $2,500 into each of two savings accounts.
Account I earns 4% annual simple interest.
Account II earns 4% interest compounded annually.
Gabriel 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 3 years?
$5,600.00
$5,624.32
$5,612.16
$5,200.00
To find the balance in Account I after 3 years with simple interest, we use the formula:
Balance = Principal + (Principal x Rate x Time)
Balance = $2,500 + ($2,500 x 0.04 x 3) = $2,500 + $300 = $2,800
Therefore, the balance in Account I after 3 years is $2,800.
To find the balance in Account II after 3 years with compound interest, we use the formula:
Balance = Principal x (1 + Rate)^Time
Balance = $2,500 x (1 + 0.04)^3 = $2,500 x (1.04)^3 = $2,500 x 1.124864 = $2,811.16
Therefore, the balance in Account II after 3 years is $2,811.16.
The sum of the balances of Account I and Account II at the end of 3 years is $2,800 + $2,811.16 = $5,611.16
Therefore, the correct answer is $5,611.16.