Question

15 Points

Answer 1

Answer:

Simple interest = $36

Compound interest = $48.96

It's better to invest $600 at 4% compounded monthly for 2 years as it's giving us more profit.

Step-by-step explanation:

Simple interest is calculated on the principal amount of a loan. Compound interest is calculated on the sum of principal amount and accumulated interest of previous periods.

Simple interest = $\frac{P R T}{100}$

Compound interest = $P(1+\frac{R}{100} )^T-P$

Here, P denotes principal amount, R denotes rate of interest, T denotes time.

Given: $600 invested at 3% simple interest for 2 years, $600 invested at 4% compounded monthly for 2 years

To find: Simple interest and compound interest.

Solution:

Take P=600, R=3% and T=2 years

Using the formula of simple interest mentioned above,

Simple interest = $\frac{600\times 3\times 2}{100}=36$

So, interest earned is $36

Take P=600, R=4% and T=2 years

Using the formula of compound interest mentioned above,

Compound interest = $600\left ( 1+\frac{4}{100} \right )^2-600$

=$600\left ( 1+\frac{1}{25} \right )^2-600$

=$600\left [ \left ( \frac{26}{25} \right )^2-1 \right ]$

=$600\left ( \frac{676}{625}-1 \right )$

=$600\times \frac{51}{625}=48.96$

So, interest earned is $48.96

It's better to invest $600 at 4% compounded monthly for 2 years as it's giving us more profit.