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)
The difference in interest earnings is $
First, let's calculate the interest earnings using the simple interest formula:
Simple Interest = Principal x Rate x Time
Simple Interest = $25,000 x 10% x 25 years = $62,500
Next, let's calculate the interest earnings using the compound interest formula:
Compound Interest = Principal x (1 + Rate)^Time - Principal
Compound Interest = $25,000 x (1 + 7%)^25 - $25,000
Compound Interest = $25,000 x (1.07)^25 - $25,000
Compound Interest = $95,271.06 - $25,000
Compound Interest = $70,271.06
Now, let's determine the difference in interest earnings:
Difference in Interest Earnings = Compound Interest - Simple Interest
Difference in Interest Earnings = $70,271.06 - $62,500
Difference in Interest Earnings = $6,771.06
Therefore, the difference in interest earnings between a 10% simple interest rate and a 7% compound interest rate after 25 years is $6,771.06.