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.
To calculate the interest earnings for each option, we can use the following formulas:
Option 1: Simple Interest
Interest = Principal * Rate * Time
Option 2: Compound Interest
Compound Interest = Principal * (1 + Rate/100)^Time
Quarterly Interest = Principal * (1 + Rate/100/4)^(Time * 4)
Let's calculate the interest earnings for each option:
Option 1:
Principal = $7,000
Rate = 15% = 0.15
Time = 3 years
Interest = 7000 * 0.15 * 3
Interest = $3,150
Option 2:
Principal = $7,000
Rate = 12% = 0.12
Time = 3 years
Quarterly Interest = 7000 * (1 + 0.12/4)^(3 * 4)
Quarterly Interest = $3,763.63
Difference in interest earnings = Quarterly Interest - Interest
Difference in interest earnings = $3,763.63 - $3,150
Difference in interest earnings = $613.63
Therefore, investing with the compound interest option will give Angel a higher financial return as the difference in interest earnings is $613.63.