Question

Which is a better investment 3% per year compounded monthly or 3.2% per year simple interest? 

Given that (1+0.0025)12 =1.0304.​

Answer 1

we have i = 3/12 = 0.25% = 0.0025

n= 12

E = (1 + i)^n - 1

= (1 + 0.0025)12 - 1

= 1.0304 – 1

= 0.0304

= 3.04% 

Given that (1+0.0025)12 =1.0304. Effective rate of interest (E) being less than 3.2%, the simple interest 3.2% per year is the better investment.

Given that (1+0.0025)12 =1.0304. Effective rate of interest (E) being less than 3.2%, the simple interest 3.2% per year is the better investment