Question

Taylor plans to use $2100 to open a savings account with an annual interest rate of 1.85%. How much more interest will he earn over 8 years if he chooses a compound interest account that compounds interest annually instead of a simple interest account? Round your answer to the nearest cent.

Answer 1

Taylor will earn $21 more in compounded interest than in simple interest.

Given:
Principal = 2100
interest rate = 1.85%
term = 8 years

Simple Interest = Principal * interest rate * term
= 2100 * 1.85% * 8
= 310.80

Compounded Interest = Principal * (1+r)^t
= 2100 * 1.0185⁸
= 2100 * 1.158
= 2431.80

Interest from Compounded Interest : 2431.80 - 2100 = 331.80

Simple Interest = 310.80
Compounded Interest = 331.80

331.80 - 310.80 = 21