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You want to deposit $625 in a savings account. If you choose bank A, your balance will be $756 in two years (bank A pays interest annually). However, you know that banks B and C also offer savings accounts: bank B pays an annual interest of 9% while bank C pays an annual interest of 10%. Assuming that you plan to keep your money in the bank for two years, which bank should you choose? Round to 1 decimal place.Group of answer choicesI am indifferent between bank A and bank BI am indifferent between bank B and bank CI am indifferent between bank A and bank CI am indifferent between bank A, bank B, and bank C

Question

You want to deposit 625inasavingsaccount.IfyouchoosebankA,yourbalancewillbe625 in a savings account. If you choose bank A, your balance will be 756 in two years (bank A pays interest annually). However, you know that banks B and C also offer savings accounts: bank B pays an annual interest of 9% while bank C pays an annual interest of 10%. Assuming that you plan to keep your money in the bank for two years, which bank should you choose? Round to 1 decimal place.Group of answer choicesI am indifferent between bank A and bank BI am indifferent between bank B and bank CI am indifferent between bank A and bank CI am indifferent between bank A, bank B, and bank C

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Solution

To answer this question, we need to calculate the amount of money you would have after two years in banks B and C, and then compare these amounts with the amount you would have in bank A.

  1. Bank A: The balance after two years is given as $756.

  2. Bank B: This bank offers an annual interest rate of 9%. The formula to calculate the future value of an investment using simple interest is: Future Value = Present Value * (1 + (Interest Rate * Number of Years)). So, the balance after two years would be: 625∗(1+(0.09∗2))=625 * (1 + (0.09 * 2)) = 625 * 1.18 = $737.5.

  3. Bank C: This bank offers an annual interest rate of 10%. Using the same formula, the balance after two years would be: 625∗(1+(0.10∗2))=625 * (1 + (0.10 * 2)) = 625 * 1.20 = $750.

Comparing these amounts, you would have the most money after two years if you deposited your money in bank A. Therefore, you should choose bank A.

This problem has been solved

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