Question

27 Rami plans to invest $1000 for 3 years using one of the following

interest calculation options:
Option 1: Simple interest at a rate of 2 8% per year
Option 2 Compound interest at a rate of 2.8% per year,
compounded monthly
Option 3 Compound interest at a rate of 2.8% per year,
1
compounded annually
Select the TWO true statements below
Option 1 earns the greatest amount of interest
Option 3 is an example of linear growth
Option 2 earns more interest than option 3
Option 3 earns more interest than option 1

Answer 1

The two true statements are:

Option 2 earns more interest than option 3.

Option 3 earns more interest than option 1.

Explanation:

Option 2, which involves compound interest compounded monthly, will earn more interest than option 3, which involves compound interest compounded annually. This is because compounding more frequently within a year results in a higher accumulated amount due to the compounding effect.

Option 3, which involves compound interest compounded annually, earns more interest than option 1, which involves simple interest. Compound interest grows exponentially over time, while simple interest grows linearly. Therefore, option 3 exhibits exponential growth, while option 1 exhibits linear growth.