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 6.5% simple interest because it will result in $26.69 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% compound interest because it will result in $73.81 more in interest earnings.
To find the difference between the two interest earning types, we can use the formula for simple interest:
Simple interest = Principal * Rate * Time
For Aria's investment of $6,700 at 6.5% for 3 years, the simple interest would be:
Simple interest = $6,700 * 0.065 * 3 = $1,302.3
For compound interest, we can use the formula:
Compound interest = Principal * (1 + Rate)^Time - Principal
For Aria's investment of $6,700 at 6% for 3 years, the compound interest would be:
Compound interest = $6,700 * (1 + 0.06)^3 - $6,700 = $1,389.06
The difference between the two interest earning types is:
$1,389.06 - $1,302.3 = $86.76
Therefore, option 2 is correct: Aria should invest with 6% compound interest because it will result in $86.76 more in interest earnings.