If $1500 is deposited in an account that pays 4% interest, what is the difference in
the amount after 3 years between the amount earned if the principal is compounded
annually and the amount earned calculated using simple interest?

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WaywardDelaney WaywardDelaney · Answer 1 · 2019-11-19T07:19:26+01:00

Answer:

The Difference between Amount earned from Compound Interest and amount earned from Simple Interest is $7.2

Step-by-step explanation:

Given as :

The Principal deposited in an account = $ 1500

The annual rate of interest = 4%

The time period = 3 years

From compounded method

Amount = principal × [tex](1+\frac{Rate}{100})^{Time}[/tex]

Or, Amount = $1500 × [tex](1+\frac{4}{100})^{3}[/tex]

Or, Amount = $1500 × ( 1.04 )³

∴ Amount = $1500 × 1.1248

I.e Amount = $1687.2

From Simple Interest method

Simple interest = [tex]\frac{principal\times rate\times time}{100}[/tex]

Or, Simple interest = [tex]\frac{1500\times 4\times 3}{100}[/tex]

Or, Simple interest = [tex]\frac{18000}{100}[/tex]

∴ Simple interest = $180

So, Amount = Interest + Principal

Amount = $180 + $1500

I,e Amount = $1680

Difference between Amount earned from CI and amount earned from SI = $1687.2 - $1680 = $7.2

Hence The Difference between Amount earned from Compound Interest and amount earned from Simple Interest is $7.2 Answer