question 2 of 10\nwhich interest rate will earn the largest return on $1,000?\na. simple interest at 3…

Explanation:

Step1: Recall interest - return formulas

Simple interest formula: $I = Prt$, where $P$ is principal, $r$ is interest rate, $t$ is time. Compound - interest formula: $A=P(1 + r)^t$, where $A$ is the final amount, $P$ is principal, $r$ is interest rate per period, $t$ is number of periods. Assume $t = 1$ year and $P=$1000$.

Step2: Calculate simple - interest returns

For option A: $I_A=1000\times0.03\times1 = 30$. For option B: $I_B=1000\times0.05\times1 = 50$.

Step3: Calculate compound - interest returns

For option C: $A_C=1000\times(1 + 0.05)^1=1000\times1.05 = 1050$, return is $1050 - 1000=50$. For option D: $A_D=1000\times(1 + 0.03)^1=1000\times1.03 = 1030$, return is $1030 - 1000 = 30$.

Step4: Compare returns

$30<50$, and compound interest at 5 percent has the same return as simple interest at 5 percent in 1 year, but in the long - run, compound interest grows faster. So compound interest at 5 percent will earn the largest return over multiple years.

Answer:

C. Compound interest at 5 percent