Question

If you invested $500 at 5% simple interest for 2 years, how much interest do you earn? Show work and answer in complete sentences to earn full credit.




If you invest $500 at 3% compounded monthly for 2 years, how much interest you do earn? Show work and answer in complete sentences to earn full credit.




Which would you rather do?

Answer 1

Therefore I earn $50 interest

Therefore I earn $30.88 interest.

I would do the first one.

Step-by-step explanation:

A.

Given , I invested $500 at 5% simple interest for 2 years.

P=$500,  r =5% and t = 2 years

$Interest (I) =\frac{P \times r \times t}{100}$

                  $=\ \frac{500 \times 5 \times 2}{100}$

                   =$50

Therefore I earn $50 interest.

B.

Given , I invested $500 at 3% compounded monthly for 2 years.

P=$500,  r =3% = 0.03 and t = 2 years

$Amount (A) =P(1+\frac{r}{n})^{nt}$  

                   $=\ 500(1+\frac{0.03}{12})^{ 2\times 12}$

                   =$530.88

Interest = $(530.88-530) = $30.88

I would do the first one.