Financial Literacy Unit Test 11 of 1511 of 15 Items Question 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 her.(1 point) 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 $86.76 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 $187.26 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% 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 $26.69 more in interest earnings.
To find the difference between the two interest earning types, we need to calculate the interest earned for both options and compare the results.
For simple interest at 6.5%:
Interest earned = Principal (P) x Rate (R) x Time (T)
= $6,700 x 6.5% x 3 years
= $1,083.50
For compound interest at 6%:
Interest earned = P(1 + r/n)^(nt) - P
Where:
P = principal amount = $6,700
r = annual interest rate (as a decimal) = 6% = 0.06
n = number of times interest is compounded per year (assume annually) = 1
t = number of years = 3
Interest earned = $6,700(1 + 0.06/1)^(1*3) - $6,700
= $6,700(1.06)^3 - $6,700
= $6,700(1.191016) - $6,700
= $7,994.10 - $6,700
= $1,294.10
The difference between the two interest earning types is:
$1,294.10 - $1,083.50 = $210.60
Therefore, the correct answer is: Aria should invest with 6% compound interest because it will result in $210.60 more in interest earnings.