Serenity wants to invest $25,000 of her savings for her retirement fund. Determine the difference in interest earnings between a 10% simple interest rate and a 7% compound interest rate with interest being compounded annually if Serenity Invests her money for 25 years. Round the answer to two decimal places as needed. (1 point)
For simple interest, the formula to calculate the interest earned over time is:
I = P * r * t, where:
I = interest earned
P = principal amount (initial investment)
r = interest rate
t = time in years
For compound interest, the formula to calculate the interest earned over time is:
A = P * (1 + r/n)^(n*t), where:
A = final amount (including interest)
P = principal amount (initial investment)
r = interest rate
n = number of times interest is compounded per year
t = time in years
For simple interest:
I = 25000 * 0.10 * 25
I = $62,500
For compound interest:
A = 25000 * (1 + 0.07/1)^(1*25)
A ≈ $98,658.12
The difference in interest earnings is:
$98,658.12 - $62,500 = $36,158.12
Therefore, the difference in interest earnings between a 10% simple interest rate and a 7% compound interest rate over 25 years is approximately $36,158.12.