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 investment option is best for her.
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 $187.26 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 $26.69 more in interest earnings.
To determine the difference between the two interest earning types, we need to calculate the interest earnings for each option.
For simple interest at 6.5%:
Simple interest = Principal * Rate * Time
Interest earned = 6700 * 0.065 * 3 = $1309.50
For compound interest at 6%:
Compound interest = Principal * (1 + Rate)^Time - Principal
Interest earned = 6700 * (1 + 0.06)^3 - 6700 = $1396.93
To find the difference between the two interest earning types, we subtract the interest earned from the compound interest option from the interest earned from the simple interest option.
Difference = 1396.93 - 1309.50 = $87.43
Therefore, the correct answer is: Aria should invest with 6% compound interest because it will result in $87.43 more in interest earnings.