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. (1 point) The difference in interest earnings is $, and option is the better investing option.
To calculate the interest earnings for each option, we can use the formulas:
Option 1 (simple interest): Interest = Principal * Rate * Time
Option 2 (compound interest): Interest = Principal * (1 + Rate/4)^(Time*4) - Principal
For Option 1:
Interest = 7000 * 0.15 * 3 = $3,150
For Option 2:
Interest = 7000 * (1 + 0.12/4)^(3*4) - 7000
= 7000 * (1.03)^12 - 7000 ≈ $3,289.61
The difference in interest earnings is $3,289.61 - $3,150 = $139.61.
Therefore, Option 2 is the better investing option.