Question

Jess has $7,500 to invest. She is considering two investment options. Option A pays 3% simple interest. Option B pays 2.75% interest compounded annually. What is the value of each investment option at 15 years?

Answer 1

Answer: option a: $3,375 option b: $3,093.75

Explanation:

amount x interest = total total x years = total

7,500 x 3%= 225 225 x 15 =3,375

7,500 x 2.75%= 206.25 206.25 x 15 = 3,093.75

Answer 2

Simple interest — A = $10 875.00

Compound interest — A = $11 266.49

Explanation:

A. Simple interest

The formula simple interest is

A = P(1 + rt)

Data:

P = $7500

r = 3 %/yr

t = 15 yr

Calculation:

A= 7500( 1 + 0.03 × 15)

= 7500 × 1.45

= $10 875

B. Compound interest

The formula for compound interest is

A = P(1 + r)ⁿ

Data:

P = $7500

r = 2.75 %/yr

n = 15 yr

Calculation:

I = 7500(1+ 0.0275)¹⁵

= 7500 × 1.0275¹⁵

= 7500 × 1.502 199

= $11 266.49