Savings account A and B pay 3 interest year Account A pays s

Savings account A and B pay 3% interest year. Account A pays simple interest, account B compounds annually. You plan to invest it for one year. All else, equal, which of the following is true? a. Account A is better becuase it is less expensive. b. Account A is better because it will accumulate more interest. c. Account B is better because it will accumulate more interest. d. Account B is better because it is less expensive. d. You are indifferent between the two accounts.

Solution

Correct answer is option (d)

Reason :In case compound interest we get interest on interest also unlike simple interest .But Here we have invested for one year and compounding is done annually therefore interest received will be same in both cases.If investment would have been for more than one year than compounding interest paying investment would have been better