Question

If $1500 is deposited in an account that pays 4% interest, what is the difference in the amount after 3 years between the amount earned if the principal is compounded annually and the amount earned calculated using simple interest? A.$3.20 B.$7.30 C.$9.40 D.$15.10

Answer 1

The answer is B. $7.30. I took this test btw, this is correct

Explanation:

Compound interest:

1500(1 + .04)^3 = 1687.296

Ending principle - beginning principle = interest

1687.296 - 1500 = 187.296 (this is the interest for compound interest)

Simple Interest:

1500 * .04 * 3 = 180 (this is the interest for simple interest)

Subtract both interests to get the difference:

187.296 - 180 = 7.296 rounded equals 7.30

The answer is $7.30 :))

Answer 2

Explanation:

First, converting R percent to r a decimal

r = R/100 = 0.04%/100 = 0.0004 per year.

Solving our equation:

A = 1500(1 + (0.0004 × 3)) = 1501.8

A = $1,501.80

The total amount accrued, principal plus interest, from simple interest on a principal of $1,500.00 at a rate of 0.04% per year for 3 years is $1,501.80.