Anastasia was trying to decide which investment plan would be best over 10 years. Bank A was offering 8.5% simple interest on her money using the formula. Bank B was offering 8% compounded annually using the formula. Which bank is a better investment if she has $2,000 to invest for 10 years?

Bank B is the better investment

Explanation:

Investment = P = $2,000

Number of years = n = 10

If the She invest in Bank A

r = 8.5% simple interest

Accumulated value after 10 years = A = P + (P x r x n) = $2,000 + ($2,000 x 8.5% x 10) = $2,000 + $1,700 = $3,700

If the She invest in Bank B

r = 8% Compounded yearly

Accumulated value after 10 years = A = P x (1 + r) ^n = $2,000 x (1 + 8%) ^10 = $2,000 x (1 + 0.08) ^10 = $2,000 x (1.08) ^10 = $2,000 x 2.1589 = $4,317.8

= $4,318

Hence Bank B is the better investment because it make more money than in Bank A after 10 years.