I would invest $500 to be compounded as Compound Interest is $1,540,250 while Simple Interest is $50.
Step-by-step explanation:
Step 1:
Calculate simple interest in the first case. Given details are Principal (P) = $500, Rate (R) = 5% and Time (T) = 2 years
⇒ Simple Interest (SI) = PRT/100 = 500 × 5 × 2/100 = $50
Step 2:
Calculate compounded interest for the second case. Given details are Principal (P) = $500, Interest rate (r) = 3%, Number of times it is compounded (n) = 12, time (t) = 2 years
⇒ Compound Interest (CI) = [P (1 + r/n)^n × t] - P
⇒ CI = [500 (1 + 3/12)^12 × 3] - 500
⇒ CI = [500 (1 + 1/4)^36] - 500
⇒ CI = [500 (5/4)^36] - 500
⇒ CI = [500 × 3081.5] - 500 = 1540750 - 500
⇒ CI = $1,540,250
