Question

You are investing $5,000 and can invest for 2 years or 3 years at 1.75% and 1.25% interest rates, respectively. Which earns more interest

Answer 1

By calculating the simple interest for both scenarios, it's determined that the 3-year investment at a 1.25% interest rate earns more interest ($187.50) compared to the 2-year investment at a 1.75% interest rate ($175).

Step-by-step explanation:

To determine which investment earns more interest, we must calculate the amount of interest earned in each scenario. The formula for simple interest is I = Prt, where I stands for interest, P is the principal amount, r is the annual interest rate, and t is the time in years.

For the 2-year investment at 1.75%, we calculate the interest as follows:

I = $5,000 × 0.0175 × 2 = $175

For the 3-year investment at 1.25%, we calculate the interest as follows:

I = $5,000 × 0.0125 × 3 = $187.50

The 3-year investment at 1.25% interest earns more than the 2-year investment at 1.75% interest rate.

Answer 2

The 3 years investment earns more interest

Step-by-step explanation:

Given

Principal, P = $5,000

Required

Determine which earns more interest

When Rate = 1.75% and Year = 2

Interest is as follows;

`I = (PRT)/(100)`

Substitute 1.75 for R, 5000 for P and 2 for T

`I = (5000 * 1.75 * 2)/(100)`

`I = (17500)/(100)`

`I = \$175`

When Rate = 1.25% and Year = 3

Interest is as follows;

`I = (PRT)/(100)`

Substitute 1.25 for R, 5000 for P and 3 for T

`I = (5000 * 1.25 * 3)/(100)`

`I = (18750)/(100)`

`I = \$187.5`

Comparing the interest of both investments, the 3 years investment earns more interest