Find the difference in financial gains when $3,200 is invested for 8 years with an interest rate of 4.5% for both simple interest and compound interest, and interest is compounded annually.
$47,810.80
$231.57
$198.72
$1,350.72
To find the difference in financial gains between simple interest and compound interest, we can use the formula for simple interest:
Simple Interest = Principal * Rate * Time
For simple interest:
Principal = $3,200
Rate = 4.5% = 0.045 (as a decimal)
Time = 8 years
Simple Interest = $3,200 * 0.045 * 8 = $1,152
To find the compound interest, we can use the formula:
Compound Interest = Principal * (1 + Rate)^Time
For compound interest:
Principal = $3,200
Rate = 4.5% = 0.045 (as a decimal)
Time = 8 years
Compound Interest = $3,200 * (1 + 0.045)^8 = $4,560.72
The difference in financial gains between simple interest and compound interest is calculated by subtracting the simple interest from the compound interest:
Difference = Compound Interest - Simple Interest
Difference = $4,560.72 - $1,152 = $3,408.72
Therefore, the difference in financial gains is $3,408.72, which is closest to $3,400.72 in the given options. None of the provided answer choices are correct.