To find the difference between the two interest earning types, we first need to calculate the interest earned by each option.
For simple interest, we can use the formula:
Simple Interest = Principal * Rate * Time
In this case, the principal is $6,700, the rate is 6.5% (or 0.065 as a decimal), and the time is 3 years.
Simple Interest = $6,700 * 0.065 * 3 = $1,307.50
For compound interest, we can use the formula:
Compound Interest = Principal * (1 + Rate/100)^Time - Principal
In this case, the principal is again $6,700, the rate is 6% (or 0.06 as a decimal), and the time is 3 years.
Compound Interest = $6,700 * (1 + 0.06/100)^3 - $6,700
= $6,700 * (1.06)^3 - $6,700
= $6,700 * 1.191016 - $6,700
= $7,987.95 - $6,700
= $1,287.95
Now that we have calculated the interest earned by each option, we can find the difference:
Difference = Compound Interest - Simple Interest
= $1,287.95 - $1,307.50
= -$19.55
The difference between the two interest earning types is -$19.55. Hence, the compound interest option would earn $19.55 less in 3 years compared to the simple interest option.
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.
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