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 (1 point)
$198.72
$1,350.72
$47,810.80
$231.57
To find the difference in financial gains for simple and compound interest, we can use the formula for simple interest:
Simple Interest = Principal * Rate * Time
So, the simple interest earned would be:
Simple Interest = $3,200 * 0.045 * 8 = $1,152
For compound interest, the formula is:
Compound Interest = Principal * (1 + Rate)^(Time) - Principal
So, the compound interest earned would be:
Compound Interest = $3,200 * (1 + 0.045)^(8) - $3,200
Compound Interest = $3,200 * (1.045)^(8) - $3,200 ≈ $4,350.72
The difference in financial gains is:
Difference = Compound Interest - Simple Interest
Difference = $4,350.72 - $1,152 ≈ $3,198.72
Therefore, the difference in financial gains is approximately $3,198.72.