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Your grandmother gives you $1500 to invest in a savings account on your 15th birthday. The only condition is that you may NOT use it until you have graduated high school at 18. After researching savings accounts, you come up with two options.



1) A high interest savings account, with 2.5% simple interest annually or

2) A High Yield Savings account with 2% interest compounded annually.



Which account will you chose and why?

Sagot :

Answer:

Step-by-step explanation:

This is a logical question that can be d=solved thus;

To decide which decision to make,one has to calculate the amount for both methods to detrmine which is higher.

1. Using simple interest formula of ( P X R X T)/ 100

Since p  = 1500, r  = 2.5%,  T = 3

1500 x 2.5% x 3  / 100  =  1500 x 0.025 x 3 / 100

112.5 / 100 = 1.125

to find amount  = 1.125 + 1500 = 1501.25 for the three 3years.

2. Using compound interest formula of ( P ( 1 + r/n)∧nt

1 + (2%/3) ∧3(3)

1500( 0.02/3) ∧ 9

1500  x 0.006 ∧9

1500 x 2.60 = 3900

A = 3900 + 1500 = 5400

SO FROM THE ABOVE I WILL G FOR THE HIGH YIELD SAVINGS AS IT IS HIGHER THAN THE INTEREST SAVINGS

Eduard22sly

Given the data from the question, the best account to use is:

A high interest savings account, with 2.5% simple interest annually (Option 1)

Simply interest formula

I = PRT / 100

A = I + P

Where

  • I is the interest
  • P is the principal
  • R is the rate
  • T is the time
  • A is the amount after time t

Compound interest formula

A = P(1 + r/n)ⁿᵗ

Where

  • A is the amount after time t
  • P is the principal
  • r is the rate
  • t is the time
  • n is number of times compounded per annual

Case 1 (simple interest)

  • Principal (P) = $ 1500
  • Rate (R) = 2.5%
  • Time (T) = 3 years
  • Interest (I) =?
  • Amount (A) =?

I = PRT / 100

I = (1500 × 2.5 × 3) / 100

I = $ 112.5

Thus

A = I + P

A = 112.5 + 1500

A = $ 1612.5

Case 2 (compound interest)

  • Principal (P) = $ 1500
  • Rate (R) = 2% = 0.02
  • Time (T) = 3 years
  • Number of time compounded annually (n) = 1
  • Amount (A) =?

A = P(1 + r/n)ⁿᵗ

Since n = 1,

A = P(1 + r)ᵗ

A = 1500(1 + 0.02)³

A = $ 1591.8

SUMMARY

The amount at the end of 3 years using:

  • A High interest savings account, with 2.5% simple interest annually is $ 1612.5
  • A High Yield Savings account with 2% interest compounded annually is $ 1591.8

Thus, the best account to use is a high interest savings account, with 2.5% simple interest annually (option 2)

Learn more about simple interest:

https://brainly.com/question/15528344

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