Compare simple interest as 3% and compounded interest as 2% with interest being compounded monthly when $750 is invested for one year to determine which interest earning type offers more financial gain
To compare the financial gain from simple interest at 3% and compounded interest at 2%, we need to calculate the interest earned from each type of interest.
For simple interest, the formula is: Interest = Principal * Rate * Time.
Interest = $750 * 0.03 * 1 = $22.50.
For compounded interest, the formula is: A = P(1 + r/n)^(nt) - P, where A is the future value (including the principal), P is the principal, r is the interest rate, n is the number of times the interest is compounded per year, and t is the time in years.
A = $750(1 + 0.02/12)^(12*1) - $750 = $15.14.
To determine which interest earning type offers more financial gain, we need to subtract the principal from the future value for compound interest.
Total gain from compounded interest = A - P = $15.14 - $750 = -$734.86.
Comparing the financial gains, the simple interest of $22.50 is greater than the compounded interest's gain of -$734.86. Therefore, simple interest at 3% offers more financial gain than compounded interest at 2% when $750 is invested for one year.