Calculate the future amounts you would have if $3,000 were invested at 12% for 4 years with simple interest and if it were invested with annual compounding. What is the difference between the two to the nearest cent, and does compound interest yield more or less than simple interest?
A) at simple interest, $4,440 with annual compounding, $4,720.56
Difference, $280.56 less;
B) at simple interest, $4,440 with annual compounding, $4,721
Difference, $281 less;
C) at simple interest, $4,440 with annual compounding, $4,720.56
Difference, $280.56 more;
D) at simple interest, $4,440 with annual compounding, $4,721
Difference, $281 more;
E) at simple interest, $4,720.56 with annual compounding, $4,440
Difference, $280.56 less;

Question

Quizplus · Accepted Answer

Using the formula for simple interest: 
$3,000 + ($3,000 x 0.12 x 4) = $4,440

Using the formula for compound interest with annual compounding: 
$3,000(1 + 0.12)^4 = $4,720.56

The difference between the two amounts is: 
$4,720.56 - $4,440 = $280.56 more

Therefore, compound interest yields more than simple interest.

Calculate the Future Amounts You Would Have If $3,000 Were