Aria is investing $6,700 of her saving 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.
answers:
Aria should invest with 6% compound interest because it will result in $86.76 more in interest earning.
Aria should invest with 6.5% simple interest because it will result in $26.69 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.
To find the difference between the two interest earning types, we need to calculate the interest earned for each option and then compare the results.
Option 1: Simple interest at 6.5%
Interest = Principal x Rate x Time
Interest = $6,700 x 0.065 x 3
Interest = $1,305
Option 2: Compound interest at 6%
We can use the compound interest formula to calculate the future value (FV) and then subtract the principal to find the interest earned.
FV = Principal x (1 + Rate)^Time
FV = $6,700 x (1 + 0.06)^3
FV = $7,601.82
Interest = FV - Principal
Interest = $7,601.82 - $6,700
Interest = $901.82
Now we can compare the two interest earnings.
Option 1 (Simple interest) = $1,305
Option 2 (Compound interest) = $901.82
The difference between the two interest earning types is:
$1,305 - $901.82 = $403.18
Therefore, the correct answer is:
Aria should invest with 6.5% simple interest because it will result in $403.18 more in interest earnings.