SOLUTION: 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 i

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