If you have a choice to earn simple interest on $20 000 for three years at 9% or annually compounding interest at 8.5% for three years which one will pay more interest and by how much?
A)Simple interest by $50.00
B)Compound interest by $122.97
C)Compound interest by $145.78
D)Simple interest by $150.00

Question

Quizplus · Accepted Answer

For simple interest:
I = P*r*t = 20000*0.09*3 = $5400
For compound interest:
Amount = P*(1+r)^t = 20000*(1+0.085)^3 = $25,578.22
Interest = Amount - Principal = $25,578.22 - $20,000 = $5,578.22
Therefore, the compound interest will be more by $5,578.22 - $5400 = $1178.22, which is closest to option C ($145.78). Hence, option C is the best choice.

If You Have a Choice to Earn Simple Interest on $20