Angel wants to invest $7,000 for 3 years. He has two investing options.
option 1: investing with a 15% simple interest rate
option 2: investing with a 12% compound interest rate, with interest being compounded quarterly
find the difference in interest earnings to help Angel determine which investing option will give more financial returns
The difference in interest earnings is $______, and option ______ is better investing option.
To find the difference in interest earnings, let's calculate the interest earned for each option:
Option 1:
Simple Interest = Principal * Rate * Time
Simple Interest = $7,000 * 0.15 * 3
Simple Interest = $3,150
Option 2:
Compound Interest = Principal * (1 + Rate / n)^(n * Time) - Principal
Compound Interest = $7,000 * (1 + 0.12/4)^(4 * 3) - $7,000
Compound Interest = $7,000 * (1.03)^(12) - $7,000
Compound Interest ≈ $9,236.05 - $7,000
Compound Interest ≈ $2,236.05
Now, let's find the difference in interest earnings:
Difference = Compound Interest - Simple Interest
Difference = $2,236.05 - $3,150
Difference = -$913.95
The difference in interest earnings is -$913.95, indicating that Option 1 is the better investing option.