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% compound interest because it will result in $86.76 more in interest earnings.

Aria should invest with 6% compound interest because it will result in $73.81 more in interest earnings.
Aria should invest with 6% compound interest because it will result in $73.81 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 6.5% simple interest because it will result in $26.69 more in interest earnings.

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

Answer 1

To compare the interest earnings from simple interest and compound interest, we can use the formula:

Simple Interest = Principal × Rate × Time

For simple interest, the interest earnings will be:

Simple Interest = 6700 × 0.065 × 3 = $1303.50

For compound interest, the formula is:

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

For compound interest, the interest earnings will be:

Compound Interest = 6700 × (1 + 0.06)^3 - 6700 = $1377.31

The difference between the two interest earning types is:

Difference = Compound Interest - Simple Interest
= $1377.31 - $1303.50
= $73.81

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