Question

How much more interest is earned on an investment of $12,585 at 3.5% interest over 5 years if the interest is compounded annually rather than earning simple interest?

Answer 1

The correct answer is B.

Explanation:

$159.65

Answer 2

Answer: $ 159.6572

Explanation:

Here, the principal amount = $ 12,585

Annual rate of percent = 3.5 %

Time = 5 years

Thus, the simple interest for 5 years in this amount,

`I_1= (12585* 3.5* 5)/(100)`

`I_1= (220237.5)/(100)`

`I_1=2202.375`

While the compound interest for 5 years in this amount,

`I_2=12585(1+(3.5)/(100))^5-12585`

`I_2=12585(1+0.035)^5-12585`

`I_2=12585(1.035)^5-12585`

`I_2=12585(1.18768631)-12585`

`I_2=14947.0322-12585=2362.0322`

Hence, the required difference,

`I_2-I_1=2362.0322-2202.375=159.6572`

Thus, he will get $ 159.6572 more compound interest rather than simple interest.