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)
To find the difference in the balance between simple interest and compound interest, we need to calculate the interest earned in both cases, and then subtract the simple interest from the compound interest.
For simple interest, we can use the formula:
Simple Interest = Principal * Rate * Time
In this case, the principal (amount invested) is $900, the rate is 5%, and the time is 5 years.
Simple Interest = $900 * 0.05 * 5
Simple Interest = $225
For compound interest, we can use the formula:
Compound Interest = Principal * (1 + Rate)^Time - Principal
In this case, the principal (amount invested) is $900, the rate is 6%, and the time is 5 years.
Compound Interest = $900 * (1 + 0.06)^5 - $900
Compound Interest = $900 * (1.06)^5 - $900
Now we can calculate the compound interest:
Compound Interest = $900 * (1.06)^5 - $900
Compound Interest ≈ $900 * 1.33822 - $900
Compound Interest ≈ $1204.396 - $900
Compound Interest ≈ $304.396
Therefore, the difference in the balance between simple interest at 5% and compound interest at 6% when $900 is invested for 5 years is:
Compound Interest - Simple Interest = $304.396 - $225
Difference in balance ≈ $79.40