2. Simple versus compound interest Financial contracts involving investments, mortgages, loans, and so on are based on either a fixed or a variable interest rate. Assume that fixed interest rates are used throughout this question. Isabella deposited $1,400 in a savings account at her bank. Her account will earn an annual simple interest rate of 6.6%. If she makes no additional deposits or withdrawals, how much money will she have in her account in 13 years? $3,213.45 $192.40 $1,498.50 $2,601.20 Now, assume that Isabella’s savings institution modifies the terms of her account and agrees to pay 6.6% in compound interest on her $1,400 balance. All other things being equal, how much money will Isabella have in her account in 13 years? $1,492.40 $3,213.45 $2,601.20 $212.09 Suppose Isabella had deposited another $1,400 into a savings account at a second bank at the same time. The second bank also pays a nominal (or stated) interest rate of 6.6% but with quarterly compounding. Keeping everything else constant, how much money will Isabella have in her account at this bank in 13 years? $230.69 $192.40 $1,494.71 $3,278.78

Respuesta :

Answer:

1. c. 2601.2

2. b. $3213.45

3. d. $3278.78

Explanation:

1. Simple Interest = Principal * Interest * Term

Simple Interest = $1400*0.066*13

Simple Interest = $1,201.2

Amount after 13 years = $1,400 + $1,201.2

Amount after 13 years = $2,601.2

2. Amount after 13 years = P(1+r)^n

= $1,400*(1+0.066)^13

= $1,400*(1.066)^13

= $1,400*2.29532222032

= $3213.451108448

= $3213.45

3. Amount after 13 years = P(1+r/n)^n*t

= $1,400*(1+0.066/4)^13*4

= $1,400*(1+0.0165)^52

= $1,400*(1.0165)^52

= $1,400*2.34198395106

= $3278.777531484

= $3278.78