Investing

Question 7 • MO-Personal Finance

Is Joni correct? Explain.

Answer

Joni is not correct, because $230 is just the interest she will earn; she will have $430 total.

Joni is not correct; $230 will be her balance after 1 year. After 3 years, she will have $290.

Joni is not correct because she used the simple interest rate formula, not the compound interest rate formula. She will have $231.53.

Joni is correct. She correctly applied the I = P · r · t formula, and will have $230.

Explanation

Joni used the simple-interest formula, which gives $200 × 0.05 × 3 = $30 in interest and a total of $230. With compound interest, the balance is $200 × 1.05³ = $231.525, or $231.53 rounded to the nearest cent. So Joni is not correct; she will have $231.53.

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