First City Bank pays 6 percent simple interest on its saving

First City Bank pays 6 percent simple interest on its savings account balances, whereas Second City Bank pays 6 percent interest compounded annually. If you made a $54,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Difference in accounts

Solution

First City Bank:

Simple interest=Principal*Interest Rate*Time Period
=($54000*6%*10 years)=$32400

Hence future value=Simple interest+Principal

=(54000+32400)=$86400.

For Second City Bank:

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=$54000(1.06)^10

=$54000*1.790847697

=$96705.78

Hence difference in accounts =$96705.78-$86400.

which is equal to

=$10305.78(Approx).