angel wants to invest $7,000. He has two investing options.
option 1: investing with a 15% simple interest rate.
option 2: investing with a 12% compounded interest rate, with interest being compounded quarterly.
Find the difference in interest-earning to help angel determine which investing option will give more financial returns.
(1 point)
The difference in interest earnings is $ , and the option is the better investing option
To find the difference in interest earnings between the two investing options, we need to calculate the interest earned under each option.
Option 1: Simple Interest
The formula to calculate simple interest is: Interest = Principal * Rate * Time
Interest = $7000 * 0.15 * 1 (since the time is 1 year)
Interest = $1050
Option 2: Compounded Interest
The formula to calculate compound interest is: A = P(1 + r/n)^(nt) - P
Where:
A = the final amount (including principal and interest)
P = the principal amount (initial investment)
r = annual interest rate (0.12)
n = number of times interest is compounded per year (quarterly, so n = 4)
t = number of years (1)
Interest = A - P
Interest = $7000 * (1 + 0.12/4)^(4*1) - $7000
Interest ≈ $7373.88 - $7000
Interest ≈ $373.88
The difference in interest earnings is $373.88, and option 2 is the better investing option.