Find the best balance after investing $12,000 for a period of 7 years at two different interest earning types: simple interest at 5% and compound interest at 4.5%. Round the answer to two decimal places.
To calculate the simple interest, we use the formula:
Simple Interest = Principal x Rate x Time
Simple Interest = $12,000 x 0.05 x 7 = $4,200
The balance after 7 years with simple interest is $12,000 + $4,200 = $16,200.
To calculate the compound interest, we use the formula:
Compound Interest = Principal x (1 + Rate)^Time - Principal
Compound Interest = $12,000 x (1 + 0.045)^7 - $12,000
Compound Interest = $12,000 x (1.045)^7 - $12,000
Compound Interest = $9,668.89 - $12,000 = -$2,331.11
The balance after 7 years with compound interest is $12,000 - $2,331.11 = $9,668.89.
Therefore, the best balance after investing $12,000 for 7 years would be $16,200 with simple interest at 5%.