Problem
You have $6,000 to invest in a savings account for 15 years and you have hvo account options to choose from. You can invest in an account that offers 8% simple interest or you can invest in an account that offers 6% interest compounded once a year. Complete the table and write an equation for each situation Simple interest & Compound Interest. Will you choose simple or compound interest? Why?
Solution
Case 1: Simple interest
We can use the formula:
y= 6000 + 6000(0.08 x)= 6000+ 480x
And replacing we got:
X Y
__________
0 6000
1 6480
2 6960
5 8400
10 10800
15 13200
__________
Case 2: Compound interest
We can use the following formula:
Y= 6000 (1+0.08)^x =6000 (1.08)^x
And replacing we got:
X Y
__________
0 6000
1 6480
2 6998.4
5 8815.97
10 12953.55
15 19033.01
__________