Question

Morris has $1,000 to invest. He is considering two investment options. Option A pays 0.5% simple interest. Option B pays 0.75% interest compounded annually. What is the value of each investment option at 5 years?

Answer 1

Therefore total amount after
`5 \ years` at the rate of
`0.5`% is
`1025\ dollars`.

Therefore total amount after
`5 \ years` at the rate of
`0.75`% is
`1038\ dollars`.

Explanation:

Given that,

Principle Amount
`(P)= 1000\ dollars`, Time
`=`
`5\ years` and he is considering two investment options. According to his investment options, Rate of simple interest for option
`A` is
`0.5`% and Rate of compounded Interest for option
`B` is
`0.75`%.

Now, considering option
`A`.

Principle Amount
`(P)= 1000\ dollars`

Time
`=`
`5\ years`

Rate of Interest
`=0.5`%

Simple Interest
`=(SI)=(P* R*\ T)/(100)`

`=(1000* 0.5* 5)/(100)`

`=(2500)/(100)`

`=25`

Total Amount
`(A)=` Principle Amount
`(P)+` Simple Interest
`(SI)`

`= 1000+25`

`=1025`

Therefore total amount after
`5 \ years` at the rate of
`0.5`% is
`1025\ dollars`.

Now, considering option
`B`.

Principle Amount
`(P)= 1000\ dollars`

Time
`=`
`5\ years`

Rate of Interest
`=0.75`%

Total Amount after
`5\ years`
`= P(1+(R)/(100) )^(5)`

`=1000(1+(0.75)/(100) )^(5)`

`= 1000(1.0075)^(5)`

`=1000* 1.0380`

`=1038.06`

Therefore total amount after
`5 \ years` at the rate of
`0.75`% is
`1038\ dollars`.