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15 June, 11:47

Elena has $500 to invest. She can put it in an account that earns 4% compounded semi-annually or in an account that earns 5% simple interest. After 2 years, how much will be in each account, including the principal?

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  1. 15 June, 11:48
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    compound interest = $541.21

    Simple interest = $550

    Step-by-step explanation:

    Compound interest formula:

    A = P (1 + r/n) nt

    Where:

    A = Future value of investment (principal + interest)

    P = Principal Amount

    r = Nominal Interest Rate (decimal form, 4/100 = 0.04)

    n = number of compounding periods in each year (2)

    t = years

    Replacing with the values given

    A = 500 (1 + 0.04/2) ^2 (2)

    A = $541.21

    simple interest formula:

    I = p x r x t

    Where:

    I = interest

    Replacing with the values given:

    I = 500x (5/100) x 2

    I = 50

    Adding the interest to the amount invested.

    500 + 50 = $550

    Feel free to ask for more if needed or if you did not understand something.
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