You invested $6,500 at 6 percent simple interest. How much more could you have earned over a 10-year period if the interest had compounded annually?
A) $1,049.22
B) $930.11
C) $1,182.19
D) $1,201.15
E) $1,240.51

Question

Quizplus · Accepted Answer

To calculate the difference between simple interest and compound interest over a 10-year period, we first calculate both types of interest on the $6,500 investment at 6 percent.Simple Interest = Principal × Rate × Time = $6,500 × 0.06 × 10 = $3,900Compound Interest = Principal × (1 + Rate)^Time - Principal = $6,500 × (1 + 0.06)^10 - $6,500 = $6,500 × (1.790847) - $6,500 = $11,640.51 - $6,500 = $5,140.51Difference = Compound Interest - Simple Interest = $5,140.51 - $3,900 = $1,240.51

You Invested $6,500 at 6 Percent Simple Interest