SOLUTION: Which do you think pays more: 4.25% simple interest for 3 years or 4% interest compounded semi-annually for the same amount of time? Explain. Please help with this questio

Question 140939: Which do you think pays more: 4.25% simple interest for 3 years or 4% interest compounded semi-annually for the same amount of time? Explain.

Please help with this question because this is so confusing!!!!!!!!!!!!
Found 2 solutions by stanbon, ankor@dixie-net.com:
Answer by stanbon(75887) (Show Source): You can put this solution on YOUR website!
Which do you think pays more: 4.25% simple interest for 3 years or 4% interest compounded semi-annually for the same amount of time?
----------------
Simple Interest Equation:
A(t) = P(1+rt)
A(3) = P(1+0.0425*3) = 1.1275P
-----------------------
Compounded semi-annually Equation:
A(t) = P(1 + (r/n))^(nt)
A(3) = P(1 + (0.0425/2))^(2*3)
A(3) = P(1.02125)^6
A(3) = P(1.134468...
--------------------------
Compounding semi-annually gives a greater outcome.
======================
Cheers,
Stan H.
Answer by ankor@dixie-net.com(22740) (Show Source): You can put this solution on YOUR website!
Which do you think pays more: 4.25% simple interest for 3 years or 4% interest compounded semi-annually for the same amount of time? Explain.
:
Here is the compound interest formula: A = P*
where
P = principal amt
A = resulting amt
r = interest rate (decimal)
t = time in years
n = no. of periods per year
:
We only need to use the multiplier which is:
:
For 4.25 % simple interest (compounded once a yr) for 3 yrs
= = 1.139955
:
For 4% compounded twice a year, for 3 yrs
= = 1.126162
:
The one with the highest multiplier pays more. (4.25%)
:
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