Question

You invested $6,500 at 6 percent simple interest. How much more could you have earned over a 10-year period if the interest had compounded annually?

Answer 1

Answer:

$1,240.51

Explanation:

In this question, we have to compute the interest based on two methods i.e simple interest and the compound interest. The difference would be taken as an answer

Simple interest

= Principal × rate of interest × time period

= $6,500 × 6% × 10 years

= $3,900

Now the amount is

= $6,500 + $3,900

= $10,400

Compound interest

= Invested amount × (1 + interest rate)^number of years

= $6,500 × (1.06)^10

= $6,500 × 1.7908476965

= $11,640.51

The difference is

= $11,640.51 - $10,400

= $1,240.51