You considering investing $1,500 at an interest rate of 5% compounded annually for
2 years or investing the $1,500 at 7% per year simple interest rate for 2 years.
Which option is better?
Use the compound interest formula for the final amount A:
Substituting:
P = 1500 <--the amount you start with.
r = 0.05 <--5% expressed as a decimal
n = 1 <--"annually" means the number of times per year interest is compounded
is 1 time per year.
t = 2 <--the number of years.
Punch that out on your calculator like this:
1500×(1+0.05÷1)^(1×2)=
and get $_____ (you do it!)
Then use the simple interest formula for the final amount A:
substituting:
P = 1500 <--the amount you start with.
r = 0.07 <--7% expressed as a decimal
t = 2 <--the number of years.
Punch that out on your calculator like this:
1500+1500×0.07×2=
and get $_____ (you do it!).
Then you can answer which option is better.
Edwin