Question

You want to invest your money in an interest bearing account. One account earns 5% interest compounded twice annually and another account that earns 5% simple interest. Compare options and analyze which (if any) option is better. Explain how you arrived at your answer. Use numbers and calculations to provide evidence for your response. Answer in complete sentences.

Answer 1

The option that is better is that compounded twice annually with 61.5 interest than the simple interest for 60.

What is Simple Interest?

Simple interest is the amount obtained from a money invested or loaned over a specific period of time with a specific interest rate.

Analysis.

Let the principal to be used be 600

Compound interest compounded annually twice, which means the tenor of interest is two years.

first year interest

I = PRT/100

P= 600, R = 5%, T = 1

I = 600 x 5 x 1/ 100 = 30

Principal for second year = principal first year + interest

                                          = 600 + 30 = 630

interest for second year = 630 x 5 x 1/ 100 = 31.5

Compound interest  = 30+31.5 = 61.5

For simple interest, duration is 2 years,

I = PRT/100

I = 600 x 5 x 2/100 = 60

In conclusion, The account that earns 5% compounded twice annually is the better one since it accrues more interest.

Learn more about simple interest: brainly.com/question/20690803

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