Question

If you invested $500 at 5% simple interest for 2 years, how much interest do you earn? Show work and answer in

Answer 1

Answer:

$50

$30.88

I will invest in simple interest as the interest there is more.

Step-by-step explanation:

If I invested $500 at 5% simple interest for 2 years, then the interest that I will get will be given by the formula

$I = P \times \frac{rt}{100}$, where P is the invested principal, r is the APR and t is the time in years.

So, in our case, $I = 500 \times \frac{5 \times 2}{100} = 50$ dollars. (Answer)

Now, if I invest $500 at 3% compound interest compounded monthly for 2 years.

Now, using the formula of compound interest we have

$I = P(1 + \frac{r}{n \times 100} )^{tn} - P$, where r is the APR and n is the number of times in a year the principal is compounded.

In our case, $I = 500(1 + \frac{3}{12 \times 100} )^{2 \times 12} - 500 = 30.88$ dollars. (Answer)

Therefore, I will invest in simple interest as the interest there is more. (Answer)