Answer to Question #219184 in Financial Math for Tina

Question

Sam wants to invest R3 450 for five years.
Wise Bank offers a savings account that pays simple interest at a rate of 12,5% per annum and Grand Bank offers a savings account paying compound interest at a rate of 10,4% per annum. 3.3.1 Which bank account will give Sam the greatest accumulated balance at the end of the five-year period? Show all your calculations.

Answer 1

Wise Bank

$I=P×R×T$

$=3450×\frac{12.5}{100}×5$

$=3450×0.125×5=R2156.25$

Grand Bank

$I=P[(1+r)^n-1]$

$=3450[(1+0.104)^5-1]$

$=3450[(1.6400)-1]$

$=3450(0.6400)=R2208.02$

Grand Bank will give Sam the greatest accumulated balance at the end of five-year period.