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
To find the difference in balance between simple interest and compound interest, we need to calculate the amount for both types of interest and then subtract the simple interest amount from the compound interest amount.
First, let's calculate the simple interest amount. The formula for simple interest is:
Simple Interest = Principal * Rate * Time
In this case, the principal (P) is $900, the rate (R) is 5%, and the time (T) is 5 years. Plugging in these values into the formula:
Simple Interest = $900 * 0.05 * 5 = $225
Now let's calculate the compound interest amount. The formula for compound interest is:
Compound Interest = Principal * (1 + Rate)^Time - Principal
In this case, the principal (P) is $900, the rate (R) is 6%, and the time (T) is 5 years. Plugging in these values into the formula:
Compound Interest = $900 * (1 + 0.06)^5 - $900
Calculating the compound interest amount:
Compound Interest = $900 * 1.338225 - $900 = $404.40
Finally, let's find the difference in balance:
Difference = Compound Interest - Simple Interest
Difference = $404.40 - $225
Difference = $179.40
Therefore, the difference in balance between simple interest at 5% and compound interest at 6% when $900 is invested for a period of 5 years is $179.40.