Answer to Question #217442 in Financial Math for Ann

Question

Find the amount by which the compound interest is larger than the simple interest. Round to the nearest cent.

Principal: $7825 Rate: 6% Years: 7

Answer 1

Compound interest formula

$I=P[(1+r)^n-1]$

$=7825[(1+0.06)^7-1]$

$=7825\times0.50363$

$=3940.91dollars$

Simple interest formula

$I=P\times$ $R$ $\times$ $T$

$=7825\times\frac{6}{100}\times7$

$=3286.5dollars$

The difference is

$3940.91-3286.5=654dollars$