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in Grade 12 by Master (866k points)

Thom and Tshidi each have R3 000 to invest. Thom invests in a savings account at a bank where he will receive 10% p.a. interest, paid out every  6 months. Lucky invests in a flexi-deposit account at a bank for two years at 10% p.a. interest, compounded annually.

  1. Calculate the interest amount Andries will receive after 2 years. 
  2. Calculate the interest amount Lucky will receive after 2 years.
  3. Identify the better investment option and motivate the answer. 

1 Answer

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by Master (866k points)
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Best answer

Simple interest (Thom)  

  1. FORMULA: Interest = P   x   R   x   T 
    Option 1
    R3 000 x 10% x 2 years  =  R600  
    OR Option 2
    R3 000 x 10% x 6/12    = R150 R150 x 4    = R600   
    OR Option 3
    R3 000 x 10% x 6/12 x 4 = R600
  2. Compound interest (Tshidi)  
    Option 1 Year 1:
     R3 000   x 10%   = R300  
    Year 2: R3 300 x 10%   = R330 Total interest   = R630   
    OR  Option 2  FORMULA: P x (1 + r)nR3 000 x (1+10/100)2  R3 000 x (1.1)2 =R3 630 Total interest = R3 630 – R3 000 = R630   

3. Better investment option: Tshidi's investment option/flexi-deposit account/An investment on compounded/ compound interest is better.

 Motivation: Tshidi receives more interest/R30 more interest/has a higher return on her invest- ment over 2 years/earns interest on interest accrued. 

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