Question

Scenario 2
John and Mary, both Finance students at The University of the West Indies, want to make an investment of USD$12,500 each. At First Bank, John invested USD$12,500.00 at an annual rate of 12% for 3 years while Mary invested the same amount at GCU Credit Union for 10% per annum compounded annually.

1. Who earns more interest and by how much?
   2. Which option would you choose and why?

Answer 1

John Investment

Int = PTR
P = Principal
T = Time
R = Rate of int
Particulars	Amount
Principal	$12,500.00
Time Period ( In Years)	3
Rate of Int	12%
Int = PTR
= $ 12500 * 3 * 12 %
= $ 4500
Int for 3 Years is $ 4500

Mary Investment

Interest = P * (1+r)^n - p

= $ 12500 * (1+0.1)^3 -12500

= $ 12500 * (1.1)^3 -12500

= $ 12500 * 1.331 -12500

= $ 16637.5 -4 12500

= $ 4137.5

Interest is more in case of John's Investment

2. Option with interest rate 12 % has to be choosed as it gives interest of $ 4500 - $ 4137.5

= $ 362.5

Pls do rate, if the answer is correct and comment, if any further assistance is required.