Aria is investing $6,700 of her savings from her summer job for her college fund. She is planning to invest the amount for 3 years and can choose between simple interest at 6.5% and compound interest at 6%. Find the difference between the two interest earning types to help Aria decide which investing option is best for her.(1 point)

Question

Responses

Aria should invest with 6% compound interest because it will result in $86.76 more in interest earnings.

Aria should invest with 6.5% simple interest because it will result in $187.26 more in interest earnings.

Aria should invest with 6.5% simple interest because it will result in $26.69 more in interest earnings.

Aria should invest with 6% compound interest because it will result in $73.81 more in interest earnings.

Answer 1

To find the difference between the two interest earning types, we can use the formula for simple interest:

Simple Interest = Principal * Rate * Time

For simple interest at 6.5%, the interest earned would be:

Interest = 6700 * 0.065 * 3 = $1303.50

Now, let's calculate the compound interest using the formula:

Compound Interest = Principal * (1 + Rate)^Time - Principal

For compound interest at 6%, the interest earned would be:

Interest = 6700 * (1 + 0.06)^3 - 6700 = $1216.74

The difference between the two interest earnings is:

1303.50 - 1216.74 = $86.76

Therefore, Aria should invest with 6.5% simple interest because it will result in $86.76 more in interest earnings.