Question

Your mom invested $2,500 in an account that pays 6 percent simple interest. How much more could she have earned over a 3-year period if the interest had been compounded annually?

Group of answer choices

$14.50

$21.86

$33.65

$27.54

Answer 1

Accout value at the end of three years with simple interest = Deposit amount + Deposit amount * simple interest rate * Number of years

Accout value at the end of three years with simple interest = 2,500 + 2,500 * 0.06 * 3

Accout value at the end of three years with simple interest = $2,950

Accout value at the end of three years with compound interest = Deposit amount * (1 + r)^n

Accout value at the end of three years with compound interest = 2,500 * (1 + 0.06)^3

Accout value at the end of three years with compound interest = 2,977.54

The difference amount: 2,977.54 - 2,950 = $27.54

Option D is correct