SOLUTION: How much more interest is earned on a $100 Series EE Savings Bond than $50 deposited in a savings account at 2.5% interest compounded annually for 15 years. [Assume the bond matur

Question 1179256: How much more interest is earned on a $100 Series EE Savings Bond than $50 deposited in a savings account at 2.5% interest compounded annually for 15 years. [Assume the bond matures in 15 years.]
Answer by CPhill(1959) (Show Source): You can put this solution on YOUR website!
To accurately determine the difference in interest earned, we need to consider how Series EE Savings Bonds accrue interest. They don't have a fixed annual rate like a traditional savings account. Instead, they earn a fixed rate for a certain period, and then the rate can change. However, for simplicity, we can use an average historical rate of return for the bond.
Here's a breakdown of the calculation:
1. Series EE Savings Bond:
Principal: $100
Years: 15
Average Annual Rate (Approximation): 4% (This is an approximation, actual rates vary)
Using the compound interest formula:
Future Value = Principal * (1 + rate)^years
Future Value = $100 * (1 + 0.04)^15
Future Value ≈ $180.09
Interest Earned = Future Value - Principal = $180.09 - $100 = $80.09
2. Savings Account:
Principal: $50
Years: 15
Annual Interest Rate: 2.5%
Using the compound interest formula:
Future Value = Principal * (1 + rate)^years
Future Value = $50 * (1 + 0.025)^15
Future Value ≈ $72.41
Interest Earned = Future Value - Principal = $72.41 - $50 = $22.41
3. Difference in Interest:
Difference = Interest Earned (Bond) - Interest Earned (Savings)
Difference = $80.09 - $22.41 = $57.68
Answer:
A $100 Series EE Savings Bond would earn approximately $57.68 more in interest than a $50 savings account deposit over 15 years, using an approximated 4% average annual rate of return for the bond.
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