Question

You are given a choice of taking the simple interest on ​$100,000 invested for 4 years at a rate of 2​% or the interest on ​$100,000 invested for 4 years at an interest rate of 2​% compounded quarterly. Which investment earns the greater amount of​ interest? Give the difference between the amounts of interest earned by the two investments.

Answer 1

Answer: The second type of investment earns greater amount of interest.

Explanation:

1)

SI = prt / 100

= 10000 x .02 x 4

= 8000

2)

At compound intetest

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

= 108307.12

Interest = 108307.12 - 100000 = 8307.12

Difference

8307.12 - 8000 = 307.12