option.
To determine which option is better, we need to compare the final amount of money earned with each option.
For the 8.3% simple interest rate, we can calculate the final amount using the formula:
Final Amount = Initial Amount + (Initial Amount * Interest Rate * Time)
Final Amount = $3,800 + ($3,800 * 8.3% * 4) = $4,928
For the 7.2% compound interest rate with interest compounded monthly, we can use the compound interest formula:
Final Amount = Initial Amount * (1 + (Interest Rate / 12))^ (n * Time)
Where n is the number of times interest is compounded per year.
In this case, n = 12 (monthly compounding), and time = 4 years.
Final Amount = $3,800 * (1 + (7.2% / 12))^ (12 * 4) = $5,258.38
Comparing the final amounts, we see that the 7.2% compound interest rate option yields a higher final amount of money ($5,258.38) compared to the 8.3% simple interest rate option ($4,928).
Therefore, the better option is 2. A 7.2% compound interest rate with interest compounded monthly.
Determine whether an 8.3% simple interest rate or a 7.2% compound interest rate with interest compounded monthly is the better investing option when $3,800 is invested for 4 years.
Enter 1 if an 8.3% simple interest rate is the better option.
Enter 2 if a 7.2% compound interest rate with interest compounded monthly is the better
1 answer