Area is investing $6700 of her savings account for her summer job for her college fund. She is planning to invest the amount of 3 years. That can choose between simple interest at 6.5 and compounded. Interest at six find the difference between the two interest earning types to help area decide which investing option is best for her
To find the difference between the two interest earning types, we need to calculate the interest earned for each option and then subtract one from the other.
For simple interest at 6.5%, we can use the formula I = P * R * T, where I is the interest earned, P is the principal amount (savings), R is the interest rate, and T is the time period in years.
So for simple interest:
I = 6700 * 0.065 * 3
I = $1303.50
For compounded interest, we can use the formula A = P * (1 + R)^T, where A is the total amount after T years.
So for compounded interest:
A = 6700 * (1 + 0.065)^3
A = $7767.45
The difference between the two interest earning types is the total amount earned with compounded interest minus the total amount earned with simple interest:
Difference = A - (P + I)
Difference = 7767.45 - (6700 + 1303.50)
Difference = $563.95
Therefore, the difference between the two interest earning types is $563.95. This means that compounded interest would earn Area $563.95 more than simple interest over a 3-year period.