Jessica invests $3,000 in an account that pays 5% simple interest. How much more could she have earned over a 7-year period if the interest had compounded annually?
A) $122.20
B) $129.20
C) $147.80
D) $171.30
E) $221.30

Question

Quizplus · Accepted Answer

With simple interest, Jessica earns $3,000 * 0.05 * 7 = $1,050. With compound interest, the amount is $3,000 * (1 + 0.05)^7 = $4,214.03, so the interest is $4,214.03 - $3,000 = $1,214.03. The difference is $1,214.03 - $1,050 = $164.03, which is closest to $171.30.

Jessica Invests $3,000 in an Account That Pays 5% Simple