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Donna deposits $40,000 into an account that pays 4% interest per year, compounded annually.Tony deposits $40,000 into an account that also pays 4% per year. But it is simple interest.Find the interest Donna and Tony earn during each of the first three years.Then decide who earns more interest for each year.Assume there are no withdrawals and no additional deposits.YearFirstSecondThirdInterest Donna earns(Interest compounded annually)$$$Interest Tony earns(Simple interest)$$$Who earns more interest? Donna earns more. Tony earns more. They earn the same amount. Donna earns more. Tony earns more. They earn the same amount. Donna earns more. Tony earns more. They earn the same amount

Question

Donna deposits 40,000intoanaccountthatpays440,000 into an account that pays 4% interest per year, compounded annually.Tony deposits 40,000 into an account that also pays 4% per year. But it is simple interest.Find the interest Donna and Tony earn during each of the first three years.Then decide who earns more interest for each year.Assume there are no withdrawals and no additional deposits.YearFirstSecondThirdInterest Donna earns(Interest compounded annually)InterestTonyearns(Simpleinterest)Interest Tony earns(Simple interest)Who earns more interest? Donna earns more. Tony earns more. They earn the same amount. Donna earns more. Tony earns more. They earn the same amount. Donna earns more. Tony earns more. They earn the same amount

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Solution

First, let's calculate the interest for Donna and Tony for each year.

For Donna (compounded annually): Year 1: 40,000∗4/100=40,000 * 4/100 = 1,600 Year 2: (40,000+40,000 + 1,600) * 4/100 = 1,664Year3:(1,664 Year 3: (40,000 + 1,600+1,600 + 1,664) * 4/100 = $1,730.56

For Tony (simple interest): Year 1: 40,000∗4/100=40,000 * 4/100 = 1,600 Year 2: 40,000∗4/100=40,000 * 4/100 = 1,600 Year 3: 40,000∗4/100=40,000 * 4/100 = 1,600

Now, let's compare who earns more each year:

Year 1: Donna and Tony both earn 1,600,sotheyearnthesameamount.Year2:Donnaearns1,600, so they earn the same amount. Year 2: Donna earns 1,664 and Tony earns 1,600,soDonnaearnsmore.Year3:Donnaearns1,600, so Donna earns more. Year 3: Donna earns 1,730.56 and Tony earns $1,600, so Donna earns more.

So, the answer is:

YearFirstSecondThird Interest Donna earns(Interest compounded annually)1,6001,6001,6641,730.56InterestTonyearns(Simpleinterest)1,730.56 Interest Tony earns(Simple interest)1,6001,6001,6001,600 Who earns more interest? They earn the same amount. Donna earns more. Donna earns more.

This problem has been solved

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