If you had $500 to put into a savings account with 8% interest , how would you know which bank to choose, if you plan to withdraw everything after 10 years—one that pays simple interest or compound interest? Explain.

Since you would withdraw more money with the compound interest, you would choose the bank which uses compund interest.

Step-by-step explanation:

Simple interest formula:

The simple interest formula is given by:

In which E are the earnings, P is the principal(the initial amount of money), r is the interest rate(yearly, as a decimal) and t is the time.

After t years, the total amount of money is:

.

Compound interest formula:

The compound interest formula is given by:

Where A is the amount of money, P is the principal(the initial sum of money), r is the interest rate(as a decimal value), n is the number of times that interest is compounded per unit t and t is the time the money is invested or borrowed for.

In this problem:

So

Simple interest:

In total:

Using simple interest, you would withdraw an amount of $900.

Compound interest

We use n = 1

You would withdraw $1079.86. Since you would withdraw more money with the compound interest, you would choose the bank which uses compund interest.