Find the difference in the balance between simple
interest at 5% and compound interest at 6% when
$900 is invested for a period of 5 years. (1 point)
$304.40
$225
$1,204.40
$79.40
To find the difference in the balance between simple interest and compound interest, we need to calculate both balances.
For simple interest, the formula is:
Simple Interest = Principal * Rate * Time
Simple Interest = $900 * 0.05 * 5 = $225
For compound interest, the formula is:
Compound Interest = Principal * (1 + Rate)^Time - Principal
Compound Interest = $900 * (1 + 0.06)^5 - $900 = $1214.40 - $900 = $314.40
Now, we can find the difference in the balances:
Difference = Compound Interest - Simple Interest
Difference = $314.40 - $225 = $89.40
Therefore, the difference in the balance between simple interest at 5% and compound interest at 6% is $89.40.
not an option
Apologies for the mistake. Let me recalculate the difference:
Simple Interest = Principal * Rate * Time
Simple Interest = $900 * 0.05 * 5 = $225
Compound Interest = Principal * (1 + Rate)^Time - Principal
Compound Interest = $900 * (1 + 0.06)^5 - $900 = $1391.26 - $900 = $491.26
Difference = Compound Interest - Simple Interest
Difference = $491.26 - $225 = $266.26
Therefore, the correct difference in the balance between simple interest at 5% and compound interest at 6% when $900 is invested for a period of 5 years is $266.26.