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Today Joelle opened an interest-bearing savings account...

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by BTGmoderatorLU » Tue Jan 02, 2018 7:08 am
Today Joelle opened an interest-bearing savings account and deposited $6,000. If the annual interest rate is 4 percent compounded interest, and she neither deposits nor withdraws money for exactly 2 years, how much money will she has in the account?

A. $6,048.00
B. $6,240.00
C. $6,450.00
D. $6,480.00
E. $6,489.60

The OA is E.

I'm really confused with this PS question. Experts, any suggestion about how can I solve it? Thanks in advance.
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by DavidG@VeritasPrep » Tue Jan 02, 2018 7:22 am
LUANDATO wrote:Today Joelle opened an interest-bearing savings account and deposited $6,000. If the annual interest rate is 4 percent compounded interest, and she neither deposits nor withdraws money for exactly 2 years, how much money will she has in the account?

A. $6,048.00
B. $6,240.00
C. $6,450.00
D. $6,480.00
E. $6,489.60

The OA is E.

I'm really confused with this PS question. Experts, any suggestion about how can I solve it? Thanks in advance.
First, you could so the actual math.

During the first year, Joelle will generate 4% interest on $6000. 4% of 6000 = 240. Her total investment at this point = 6240.

During the second year, Joelle will generate 4% interest on $6240. 4% of 6240 = 249.60. Her total investment at this point = 6240 + 249.60 = 6489.60. The answer is E

Of course, there's no need to do that. If you know that compound interest will always yield more interest than simple interest, it's enough to see that with simply interest, Joelle will earn $240 each year, for a total of 480, giving her 6000 + 480 = 6480. If we know that compound interest will yield a greater value, only E will work.
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