Question

Michael has 2 options to invest $ 10,000: 1. 4% Simple Interest for 10 years or 2. 3.25% Compound Interest for 10 years. Which will earn him more money?


Answers:


A. Option 1


B. Option 2


C. They are equal
(Please make sure your answer is 100% correct)
(Thank you!)

Answer 1

Option 2 is better which is compound interest.

Step-by-step explanation:

SIMPLE INTEREST

Formula for simple interest = $\frac{PRT}{100}$

Principal = $10,000

Rate = 1.4%

Time = 10 years

Simple Interest = $\frac{PRT}{100}$

Simple Interest = $\frac{10,000*1.4*10}{100}$

Simple Interest = $1400

COMPOUND INTEREST

Formula to calculate compound interest =( $P*(1+r)^{n}$ ) - P

Principal = $10,000

Rate = 3.25%

Time = 10 years

Compound Interest = ( $P*(1+r)^{n}$ ) - P

Compound Interest = ( $10,000*(1+3.25%)^{10}$ ) - 10,000

Compound Interest = 13769 - 10,000

Compound Interest = $3,769

Compound Interest will earn him more money than simple interest as he will get more interest on it. Therefore, option 2 is correct.

Keyword: Interest

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