Finance - Interest

Often people are stuck when it comes to choosing which bank offers the best plan interest
wise. For this investigation the issue being looked at is whether compound interest or simple
interest would result in more money. To discover the answer, a spreadsheet and a graph will be
created to show the mathematical protocols involved.
The offered payment looked at in this investigation is an investment of $2,000 over a period
between 4 and 10 years.
The following interest rates have been quoted from two different financial institutions:
Option 1:
5.75% p.a. flat rate (Interest payable into your account)
Option 2:
4.85% compounded annually. (Interest payable on maturity)
A spreadsheet and graph created on google sheets shows the process to which the problem is

investigated.
From looking at the results, it is determined that compound interest after 10 years equates to
more money. The graph shows that compound interest (red) starts off being less money but
over the years gradually builds up to $3,212 after 10 years, while the simple interest (blue) turns
out to be $3,150 after 10 years. For this problem the answer to which the better option to go

with is Option 2 - 4.85% compounded annually. (Interest payable on maturity), found by the
results shown on the spreadsheet and graph. Although, at 4 years the simple interest account
balance is at $2,460 while the compound interest has an account balance of $2,417. This
means that at 4 years, the simple interest (blue) results in more money.
To find the account balance for Option 1 (simple interest) it was calculated by using this formula
=$C$1+(0.0575*A6*$C$1). To find the account balance for Option 2 (compound interest) it
was calculated by this formula =1.0485*B5. Both of these methods worked very well and
efficiently for what was needed to be discovered. By using the spreadsheets it was fast and
simple to complete the mathematics required and be able to present it in a manner that is
simple to understand.
This method contains a formula that deals with money that is fixed and not able to be altered,
this creates an issue if the problem dealt with was real life as it would be assumed that regular
payments would be made into the account and thus creating more money to have interest
earned from, rather than the original fixed principal for that particular year. To improve this
method and make it more relevant to real life perhaps payments could be taken into account if
the information was provided.
In conclusion, depending on how long the money is wanted or needed to be deposited for both
options would