Question

Beth inherited $13,000 and decided to invest the money at her bank. She has 2 options:

Option 1 :earning simple interest at 6% or
Option 2 :earning compound interest at 5.5%.
Which investment option will yield more return over a 10-year period?

A) Option one will yield $7800 more.
B) Option two will yield $7800 more.
C) Option 2 will have $1405.88 more.
D) Option 2 will have $1405.88 more.
E) Both options are the same.

Answer 1

Option 2 earning compound interest at 5.5% will yield $1405.88 more than option 1 earning simple interest at 6% over a 10-year period.

Step-by-step explanation:

In this question, Beth has the option to invest $13,000 in her bank with two different investment options. Option 1 offers a 6% simple interest rate, while option 2 offers a 5.5% compound interest rate. To determine which option will yield more return over a 10-year period, we need to calculate the final amounts using each type of interest.

Using simple interest, the final amount after 10 years would be $13,000 + ($13,000 * 0.06 * 10) = $19,800.

Using compound interest, the final amount after 10 years would be $13,000 * (1 + 0.055)^10 = $21,029.96.

Therefore, option 2 earning compound interest at 5.5% will yield $1405.88 more than option 1 earning simple interest at 6% over a 10-year period. The correct answer is D) Option 2 will have $1405.88 more.