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 investment option is best for her.
Responses
Aria should invest with 6% compound interest because it will result in $86.76 more in interest earnings. .
Aria should invest with 6% compound interest because it will result in $73.81 more in interest earnings.
Aria should invest with 6.5% simple interest because it will result in $187.26 more in interest earnings.
Aria should invest with 6.5% simple interest because it will result in $26.69 more in interest earnings.
To find the difference between the two interest earning types, we need to calculate the interest earnings for each option and compare them.
For simple interest at 6.5%:
Interest = Principal * Rate * Time
Interest = $6,700 * 6.5% * 3 years
Interest = $6,700 * 0.065 * 3
Interest = $1,302.75
For compound interest at 6%:
Future Value = Principal * (1 + Rate)^Time
Future Value = $6,700 * (1 + 6%)^3
Future Value = $6,700 * 1.06^3
Future Value = $7,536.60
Compound Interest = Future Value - Principal
Compound Interest = $7,536.60 - $6,700
Compound Interest = $836.60
Difference in interest earnings = Compound Interest - Simple Interest
Difference in interest earnings = $836.60 - $1,302.75
Difference in interest earnings = -$466.15
Therefore, the correct response is: Aria should invest with 6.5% simple interest because it will result in $466.15 more in interest earnings.