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Two brothers, Michael and Tom, each inherit $5000. Michael invests his inheritance in a savings account with an annual return of 2%, while Tom invests his inheritance in a CD paying 6.5% annually. How much more money than Michael does Tom have after 1 year?

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jepessoa

Answer:

$225

Explanation:

After one year, Michael will have $5,000 x 1.02 = $5,100

At the same time, Tom will have $5,000 x 1.065 = $5,325

Tom will have $5,325 - $5,100 = $225 more than Michael

This difference results from subtracting the CD's interest rate from the savings account's interest rate = 6.5% - 2% = 4.5% and then multiplying it by the principal = 4.5% x $5,000 = $225

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