Question

If you invested $500 at 5% simple interest for 2 years, how much interest do you earn? Show work and answer in complete sentences to earn full credit.

If you invest $500 at 3% compounded monthly for 2 years, how much interest you do earn? Show work and answer in complete sentences to earn full credit.



Which would you rather do?

Answer 1

$50

$30.45

Simple interest.

Explanation:

If I invested $500 at 5% simple interest for 2 years, then the amount of interest that I will get will be calculated by the simple interest formula as

`I = (Prt)/(100) = (500 * 5 * 2)/(100) = 50` dollars.

Now, if I invest $500 at 3% compounded monthly for 2 years, then the amount of compound interest will be calculated by the compound interest formula as

`I = P(1 + (r)/(100))^(t) - P = 500(1 + (3)/(100))^(2) - 500 = 30.45` dollars.

So, I will prefer to invest in simple interest as the interest there is more. (Answer)