Question

Would you rather invest $250 in a simple interest account earning 3% over 3 years or a compound interest account that earns 4% over 2 years?

Which account earns more?

By how much? $

Answer 1

Answer:4% over 2 years

Explanation:

Answer 2

To compare the two accounts, we need to calculate the final amount in each account after the given period.

For the simple interest account:

I = P * r * t

I = 250 * 0.03 * 3 = $22.50

Final amount = P + I = $272.50

For the compound interest account:

Final amount = P * (1 + r/n)^(nt)

Final amount = 250 * (1 + 0.04/2)^(22) = $276.16

Therefore, the compound interest account earns more by $3.66 ($276.16 - $272.50).