Question

Shani borrowed $5000 at an annual interest rate of 4% compounded yearly. William borrowed the same amount of money at an annual interest rate of 6% compounded yearly. How much more interest will William pay than Shani at the end of 3 years?

Answer 1

Answer: William will pay $ 330.76 more interest than Shani at the end of 3 years.

Explanation:

Compound interest =
`P((1+r)^t-1)` , P= principal , r= rate of interest , t= time

Given: P = $5000 , t= 3 years

For Shani , r= 4% = 0.04

Compound interest =
`5000((1+0.04)^3-1)`

`=5000(1.124864-1)\\\\=5000(0.124864)\\\\=\$\ 624.32`

For William, r= 6%= 0.06

Compound interest =
`5000((1+0.06)^3-1)`

`=5000(1.191016-1)\\\\=5000(0.191016)\\\\=\$\ 955.08`

Difference = $ ( 955.08- 624.32)

= $ 330.76

Hence, William will pay $ 330.76 more interest than Shani at the end of 3 years.