Find the difference in the balance between simple interest at 5% and compound interest at 6% when $900 is invested for a period of 5 years.(1 point)
Responses
$225
$225
$79.40
$79.40
$304.40
$304.40
$1,204.40
To find the difference in balance between simple interest at 5% and compound interest at 6%, we first need to calculate the balances for each type of interest.
For simple interest, the formula is: balance = principal + (principal * rate * time)
So, the balance for simple interest at 5% is: $900 + ($900 * 0.05 * 5) = $900 + ($45 * 5) = $900 + $225 = $1125.
For compound interest, the formula is: balance = principal * (1 + rate)^time
So, the balance for compound interest at 6% is: $900 * (1 + 0.06)^5 = $900 * (1.06)^5 = $900 * 1.338225 = $1204.40.
Therefore, the difference in balance between simple interest at 5% and compound interest at 6% is: $1204.40 - $1125 = $79.40.
The correct answer is: $79.40.