Question

If $3,000 is deposited in an account that pays 5% interest what is the difference in the amount after 4 years between the amount earned if the principal is compounded annually in the amount earned calculated using simple interest

A. $30.75
B. $41.12
C. $46.52
D. $53.76

Answer 1

C Is the answer to the question

Answer 2

If the interest is compounded annually, then
A = P*(1+r/n)^(n*t)
A = 3000*(1+0.05/1)^(1*4)
A = 3646.51875
which rounds to 3646.52
Call this value x, so x = 3646.52
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If the interest is compounded using simple interest, then
A = P*(1+r*t)
A = 3000*(1+0.05*4)
A = 3600
Call this value y, so y = 3600
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Now subtract x and y
x-y = 3646.52-3600 = 46.52
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Therefore the answer is choice C) $46.52