calculate the difference between the compound interest and the simple interest on R2000000 at 6% p.a. after 3 years
To calculate the difference between compound interest and simple interest, we need to first calculate the interest amounts using both methods.
To calculate the simple interest, we use the formula:
Simple Interest = Principal * Rate * Time
Where:
- Principal is the initial amount (R2000000)
- Rate is the interest rate per annum (6% or 0.06 in decimal form)
- Time is the number of years (3 years)
Using these values in the formula, we have:
Simple Interest = 2000000 * 0.06 * 3 = 360000
Now, let's calculate the compound interest. Compound interest is calculated using the formula:
Compound Interest = Principal * (1 + Rate)^Time - Principal
Where:
- Principal is the initial amount (R2000000)
- Rate is the interest rate per annum (6% or 0.06 in decimal form)
- Time is the number of years (3 years)
Using these values in the formula, we have:
Compound Interest = 2000000 * (1 + 0.06)^3 - 2000000 = 379699.54
Now, to calculate the difference between compound interest and simple interest, we subtract the value of simple interest from the value of compound interest:
Difference = Compound Interest - Simple Interest
Difference = 379699.54 - 360000 = 19699.54
Therefore, the difference between the compound interest and simple interest on R2000000 at 6% p.a. after 3 years is R19699.54.