Serenity wants to invest $25,000 of her savings for her retirement fund. Determine the difference in interest earning between 10% simple interest rate and 7% compounded interest rate with interest being compounded annually if serenity invest her money for 25 years round your answer to two decimal places as needed.
To calculate the difference in interest earning, we need to find the total amount earned at the end of 25 years for both the simple interest rate and the compounded interest rate.
For the simple interest rate:
Simple Interest = Principal * Interest Rate * Time
Simple Interest = $25,000 * 10% * 25 years
Simple Interest = $62,500
For the compounded interest rate:
Compound Interest = Principal * (1 + Interest Rate)^Time - Principal
Compound Interest = $25,000 * (1 + 7%)^25 - $25,000
Compound Interest = $25,000 * (1 + 0.07)^25 - $25,000
Compound Interest = $130,867.48 - $25,000
Compound Interest = $105,867.48
Difference in interest earning = Compound Interest - Simple Interest
Difference in interest earning = $105,867.48 - $62,500
Difference in interest earning = $43,367.48
Therefore, the difference in interest earning between a 10% simple interest rate and a 7% compounded interest rate with interest being compounded annually for 25 years is $43,367.48.