Problem Solving - 39

On a certain day, Tim invest $1,000 at 10 percent annual interest, compound annually, and Lana invested $ 2,000 at 5 percent annual interest, compound annually. The total amount of interest earned by Tim's investment in the first 2 years was how much greater than the total amount of interest earned by Lana's investment in the first 2 years?

A. 5
B. 15
C. 50
D. 100
E. 105

Answer: A

Amount = P[1+(r/100)] ^ t
Tim's investment Amount = 1000(1+10%)^2=1210
Interest earned by Tim = Amount - P = 1210 - 1000 = 210
Lana's investment Amount = 2000(1+5%)^2=2205
Interest earned by Lana = Amount - P = 2205 - 2000 = 205
Hence 210-205=5