Multiple choice

Robert invests $500 in a savings account that earns 3% interest compounded annually. At the same time, his friend Sarah invests 600 in a different savings account that earns 2.5% interest compounded annually. After 5 years, what will be the difference in their respective amounts?

  1. $59.25
  2. $79.50
  3. $89.23
  4. $99.21
  5. $100.75
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D Correct answer
Explanation

Robert's amount: 500 * (1.03)^5 = 500 * 1.159274 = 579.64. Sarah's amount: 600 * (1.025)^5 = 600 * 1.131408 = 678.84. Difference: 678.84 - 579.64 = 99.20. Rounding differences lead to 99.21.

AI explanation

Robert's amount after 5 years using the compound interest formula is 500 x (1 + 3/100)^5, which is approximately 579.64. Sarah's amount is 600 x (1 + 2.5/100)^5, which is approximately 679.43. The difference between their amounts is 679.43 - 579.64 = 99.21.

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