Here are two schemes for investing £2000 for 3 years. Scheme a: £5.35 interest each month. Scheme b: 3% simple interest each year. Which scheme gives the most total interest over the 3 year period?
Economist, 1st class from LSE. Passion for teaching maths and helping others.
Hi Lauren, So a) first: In 3 years there are a total of 12x3=36 months And 36x5.35=£192.60 Then b): The formula for simple interest is P(1+rt/100) where P is the principle (which we can think of as how much we started with), r is the interest rate (think r for rate!) and t is the length of time (in years) So that’s 2000(1+3x3/100)=2000(1.09) =2180 Meaning we gained £180 from scheme b) Hence scheme a) gives more interest. Hope that helps!
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