Aria is investing $6,700 of her savings from her summer job
for her college fund. She is planning to invest the amount for
3 years and can choose between simple interest at 6.5% and
compound interest at 6%. Find the difference between the
two interest earning types to help Aria decide which investing
option is best for here.
To find the difference between the two interest earning types, we need to calculate the interest earned for each option.
For simple interest, we can use the formula: Interest = Principal * Rate * Time
Here, Principal = $6,700, Rate = 6.5% = 0.065, and Time = 3 years
So, the interest earned for simple interest = 6700 * 0.065 * 3 = $1309.50
For compound interest, we can use the formula: A = P(1 + r/n)^(nt)
Here, Principal = $6,700, Rate = 6% = 0.06, Time = 3 years, and n = 1 (since it is compounded annually)
So, the interest earned for compound interest = 6700 * (1 + 0.06/1)^(1*3) - 6700 = $1293.83
The difference between the two interest earning types = Simple interest - Compound interest
= $1309.50 - $1293.83
= $15.67
Therefore, the difference between the two interest earning types is $15.67.