Question

angel wants to invest $7,000. He has two investing options.
option 1: investing with a 15% simple interest rate.
option 2: investing with a 12% compounded interest rate, with interest being compounded quarterly.

Find the difference in interest-earning to help angel determine which investing option will give more financial returns.

(1 point)

The difference in interest earnings is $ , and the option is the better investing option

Answer 1

To find the difference in interest earnings between the two investing options, we need to calculate the interest earned under each option.

Option 1: Simple Interest
The formula to calculate simple interest is: Interest = Principal * Rate * Time

Interest = $7000 * 0.15 * 1 (since the time is 1 year)

Interest = $1050

Option 2: Compounded Interest
The formula to calculate compound interest is: A = P(1 + r/n)^(nt) - P

Where:
A = the final amount (including principal and interest)
P = the principal amount (initial investment)
r = annual interest rate (0.12)
n = number of times interest is compounded per year (quarterly, so n = 4)
t = number of years (1)

Interest = A - P

Interest = $7000 * (1 + 0.12/4)^(4*1) - $7000

Interest ≈ $7373.88 - $7000
Interest ≈ $373.88

The difference in interest earnings is $373.88, and option 2 is the better investing option.