Serenity wants to invest $25,000 of her savings for her retirement fund. Determine the difference in interest earnings between a 10% simple interest rate and a 7% compound interest rate with interest being compounded annually if Serenity Invests her money for 25 years. Round the answer to two decimal places as needed. (1 point)

Answer 1

For simple interest, the formula to calculate the interest earned over time is:
I = P * r * t, where:
I = interest earned
P = principal amount (initial investment)
r = interest rate
t = time in years

For compound interest, the formula to calculate the interest earned over time is:
A = P * (1 + r/n)^(n*t), where:
A = final amount (including interest)
P = principal amount (initial investment)
r = interest rate
n = number of times interest is compounded per year
t = time in years

For simple interest:
I = 25000 * 0.10 * 25
I = $62,500

For compound interest:
A = 25000 * (1 + 0.07/1)^(1*25)
A ≈ $98,658.12

The difference in interest earnings is:
$98,658.12 - $62,500 = $36,158.12

Therefore, the difference in interest earnings between a 10% simple interest rate and a 7% compound interest rate over 25 years is approximately $36,158.12.