Question

What would be the difference at the end of one year between the simple interest earned on a deposit of $450 at 4.5% and the compound interest earned on $450 at 4.5% compounded annually?

$22.50


$22.25


$0


$20.25

Answer 1

$0

Explanation:

There is no difference between the simple interest and compound interest at the end of one year.

Answer 2

Answer: $0

Explanation:

The formula for simple interest is expressed as

I = PRT/100

Where

P represents the principal

R represents interest rate

T represents time in years

I = interest after t years

From the information given

T = 1 year

P = $450

R = 4.5%

Therefore

I = (450 × 4.5 × 1)/100

I = 2025/100

I = 20.25

For compound interest,

Initial amount deposited into the account is $450 This means that the principal,

P = 450

It was compounded annually. This means that it was compounded once in a year. So

n = 1

The rate at which the principal was compounded is 4.5%. So

r = 4.5/100 = 0.045

It was compounded for just a year. So

t = 1

The formula for compound interest is

A = P(1+r/n)^nt

A = total amount in the account at the end of t years. Therefore

A = 450 (1+0.045/1)^1×1

A = 450(1.045) = $470.25

Compound interest = 470.25 - 450 = 20.25

The difference is 20.25 - 20.25 = 0