Question

If you have a choice to earn simple interest on $10,000 for three years at 8% or annually compounded interest at 7. 5% for three years which one will pay more and by how much?.

Answer 1

Answer:

annually compounded interest at 7. 5% for three years will pay more by $22.97

Explanation:

Simple interest

A = P (1+ rt)

A = final amount

P = initial principal balance

r = interest rate

t = number of time periods elapsed

A = 10000(1+0.08x3) = $12,400

Annual compound interest

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

A = final amount

P = initial principal balance

r = interest rate

n = number of times interest applied per time period

t = number of time periods elapsed

A = 10000(1+0.075/1)^(1x3) = $12,422.97

$12,422.97 - $12,400 = $22.97