To determine which option will earn the most interest per year, we need to calculate the compound interest for each option.
a. For option a, the interest rate is 6.00% per annum, and the investment is for 1 year. The compound interest is:
= Principal amount * (1 + interest rate)^time - Principal amount
= 1 * (1 + 0.06)^1 - 1
= 1 * 1.06 - 1
= 0.06
b. For option b, the interest rate is 5.00% per annum, and the investment is for 2 years. The compound interest is:
= Principal amount * (1 + interest rate)^time - Principal amount
= 1 * (1 + 0.05)^2 - 1
= 1 * 1.1025 - 1
= 0.1025
c. For option c, the interest rate is 3.00% per annum, and the investment is for 4 years. The compound interest is:
= Principal amount * (1 + interest rate)^time - Principal amount
= 1 * (1 + 0.03)^4 - 1
= 1 * 1.1255 - 1
= 0.1255
d. For option d, the interest rate is 4.00% per annum, and the investment is for 3 years. The compound interest is:
= Principal amount * (1 + interest rate)^time - Principal amount
= 1 * (1 + 0.04)^3 - 1
= 1 * 1.124864 - 1
= 0.124864
Comparing the compound interests, we find that option c (interest rate of 3.00% per annum, invested for 4 years) will earn the most interest per year with a compound interest of 0.1255.
When investing money that is compounded annually, which of the following options will earn the most of interest per year?
a. interest rate of 6.00% per annum, invested for 1 year b. interest rate of 5.00% per annum, invested for 2 years
c. interest rate of 3.00% per annum, invested for 4 years
d. interest rate of 4.00% per annum, invested for 3 years
1 answer
1 answer