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 Option 1, we will use the formula: Interest = Principal * Rate * Time.
Interest for Option 1 = $7,000 * 0.15 * 3 = $3,150
To calculate the interest earnings for Option 2, we will use the formula: Amount = Principal * (1 + Rate/100)^Time.
Amount for Option 2 = $7,000 * (1 + 0.12/4)^(4*3) = $7,973.84
Interest for Option 2 = Amount - Principal = $7,973.84 - $7,000 = $973.84
The difference in interest earnings is $973.84 - $3,150 = -$2,176.16.
Option 1 is the better investing option as it generates more interest earnings.