To find the difference in financial gains, we need to calculate the amount of money earned from both simple interest and compound interest.
For simple interest, we use the formula:
Simple Interest = Principal × Rate × Time
Simple Interest = $3,200 × 0.045 × 8
Simple Interest = $1,152
For compound interest, we use the formula:
Compound Interest = Principal × (1 + Rate)^Time - Principal
Compound Interest = $3,200 × (1 + 0.045)^8 - $3,200
Compound Interest = $3,200 × (1.045)^8 - $3,200
Compound Interest ≈ $3,200 × 1.388641 - $3,200
Compound Interest ≈ $4,443.65 - $3,200
Compound Interest ≈ $1,243.65
The difference in financial gains is the compound interest earned minus the simple interest earned:
Difference = Compound Interest - Simple Interest
Difference = $1,243.65 - $1,152
Difference ≈ $91.65
Therefore, the difference in financial gains when $3,200 is invested for 8 years with an interest rate of 4.5% for both simple interest and compound interest is approximately $91.65.
Find the difference in financial gains when $3,200 is invested for 8 years with an interest rate of 4.5% for both simple interest and compound interest, and interest is compounded annually.
1 answer