Question

Jenny recently received $3000 that she would like to invest for schooling, which she plans to attend in five years. One choice is to invest it in an account that pays 7% simple interest. Her other choice is to invest in an account that pays 6% compounded yearly. Which investment is better for her and why?

How would I do this while writing an explicit function?

Answer 1

To determine the better investment choice, we calculate the future value of each option after five years. The account with 6% compounded yearly will yield a higher future value than the account with 7% simple interest.

Step-by-step explanation:

To determine which investment option is better for Jenny, we need to calculate the future value of each investment after five years. For the first choice, the account that pays 7% simple interest, we can use the formula: Future Value = Principal + (Principal × Interest Rate × Time)

So, Future Value = $3000 + ($3000 × 0.07 × 5) = $3750.

For the second choice, the account that pays 6% compounded yearly, we can use the formula: Future Value = Principal × (1 + Interest Rate)^Time.

So, Future Value = $3000 × (1 + 0.06)^5 ≈ $3841.33.

Therefore, the investment with the account that pays 6% compounded yearly is better for Jenny because it will yield a higher future value after five years.