Problem 1: Simple Interest versus Compound Interest First City Bank pays 7.7 percent simple interest on its savings account balances, whereas Second City Bank pays 7.7 percent interest compounded annually. If you made a $7,800 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years?

Problem 2:

Calculating Future Values Compute the future value of $1,250 compounded annually for:

a.10 years at 5 percent.

b.10 years at 10 percent.

c.20 years at 5 percent.

d. Why is the interest earned in part (c) not twice the amount earned in part (a)?