Question

If $1200 is deposited in an account that pays 6.5% interest, what is the difference in the amount after 4 years between the amount earned if the principal is compounded annually and the amount earned calculated using simple interest?

Answer 1

The interest would be $312

Answer 2

Compounded is
$A=P(r+1)^t$ for
P=principal
r=rate
t=time

simplie is
I=PRT
p=principal
r=rate
t=time



comound
P=1200
R=6.5%=0.065
T=4
$A=1200(0.065+1)^4$
$A=1200(1.065)^4$
A=1543.76
I=A-P
I=1543.76-1200
I=343.76


simple
P=1200
r=6.5%=0.065
t=4
I=1200*0.065*4
I=312


compare
compouned=343.76
simplie=312
difference=343.76-312=31.76

the difference is $31.76