Siphon has R5000 to invest for 10 years bank offers him 6,5 compound interest per year. His uncle offer him 7,5 on simple interest which investment is best for 10 years
To determine which investment is better for Siphon over 10 years, we can calculate the final amount for both options.
Option 1: Bank with compound interest
Principal amount (P) = R5000
Annual interest rate (r) = 6.5%
Number of years (t) = 10
The formula for compound interest is: A = P(1 + r/100)^t
A = 5000(1 + 6.5/100)^10
A = 5000(1.065)^10
A = 5000(1.790847)
A = R8954.24
Option 2: Uncle with simple interest
Principal amount (P) = R5000
Annual interest rate (r) = 7.5%
Number of years (t) = 10
The formula for simple interest is: A = P(1 + rt/100)
A = 5000(1 + 7.5*10/100)
A = 5000(1 + 75/100)
A = 5000(1.75)
A = R8750
Comparing the final amounts:
With the bank (compound interest): R8954.24
With the uncle (simple interest): R8750
Therefore, investing with the bank offering 6.5% compound interest per year is the better option for Siphon over 10 years.