To calculate the interest earnings for each option, we can use the following formulas:
Option 1: Simple Interest
Interest = Principal * Rate * Time
Option 2: Compound Interest
Compound Interest = Principal * (1 + Rate/100)^Time
Quarterly Interest = Principal * (1 + Rate/100/4)^(Time * 4)
Let's calculate the interest earnings for each option:
Option 1:
Principal = $7,000
Rate = 15% = 0.15
Time = 3 years
Interest = 7000 * 0.15 * 3
Interest = $3,150
Option 2:
Principal = $7,000
Rate = 12% = 0.12
Time = 3 years
Quarterly Interest = 7000 * (1 + 0.12/4)^(3 * 4)
Quarterly Interest = $3,763.63
Difference in interest earnings = Quarterly Interest - Interest
Difference in interest earnings = $3,763.63 - $3,150
Difference in interest earnings = $613.63
Therefore, investing with the compound interest option will give Angel a higher financial return as the difference in interest earnings is $613.63.
Angel wants to invest $7,000 for 3 years. He has two investing options.
Option 1: Investing with a 15% simple interest rate.
Option 2: Investing with a 12% compound interest rate, with interest being compounded quarterly.
Find the difference in interest earnings to help Angel determine which investing option will give more financial returns.
1 answer