Question

Marcus has $7000 to invest in a savings account for 3 years. The bank offers two investment options. Option A pays 5 % simple interest per year and Option B pays 4% compound interest per year. (a) How much interest would Marcus earn after 3 years with Option A?

Answer 1

$ 630

Explanation:

One is given the following information:

• $7000 was invested in a savings account
• Option A: 3% simple interest annually
• Option B: 4% interest compounded annually

The problem asks one to find out the amount of interest earned after 3 years of going with option A. The easiest way to do such is to form an equation. The general equation for simple interest is the following:

A * 0.01P(d) = I

Where the parameters indicate the following values,

A = amount invested

P = interest rate

d = time invested (years)

I = amount earned in the form of interest

Substitute the given values into the formula, then simplify to evaluate,

A * 0.01P(d) = I

7000 * 0.01(3)(3) = I

7000 * 0.01(9) = I

7000 * 0.09 = I

630 = I