Question

if you in invested $500 at 5% simple interest for 2 years, how much interest do you earn? show work and answer in complete sentances to earn full credit. if you invest $500 at 3% compound monthly for 2 years, how much interest do you earn? show work and answer in complete sentances to earn full credit which would you rather do?

Answer 1

Explanation:

1) The formula for simple interest is expressed as

I = PRT/100

Where

P represents the principal

R represents interest rate

T represents time in years

I = interest after t years

From the information given

T = 2 years

P = $500

R = 5%

Therefore

I = (500 × 5 × 2)/100

I = $50

2) Principal, P = $500

It was compounded monthly. This means that it was compounded 12 times in a year. So

n = 12

The rate at which the principal was compounded is 3%. So

r = 3/100 = 0.03

It was compounded for just 2 years. So

t = 2

The formula for compound interest is

A = P(1+r/n)^nt

A = total amount in the account at the end of t years. Therefore

A = 500 (1+0.03/12)^12 × 2

A = 500 (1.0025)^24

A = $530.88

The interest is

530.88 - 500 = $30.88