Question

Businesses deposit large sums of money into bank accountsImagine an account with $10 million dollars in it.
A. How much would the account earn in one year of simple interest at a rate of 2.12%? Round to the nearest cent.
B.How much would the account earn in one year at 2.12% if the interest was compounded daily? Round to the nearest cent.
C.How much more interest is eamed by interest compounded daily compared to simple interest?

Answer 1

again, let's assume daily compounding means 365 days per year.

$~~~~~~ \textit{Simple Interest Earned} \\\\ I = Prt\qquad \begin{cases} I=\textit{interest earned}\\ P=\textit{original amount deposited}\dotfill & \ 10000000\\ r=rate\to 2.12\%\to \frac{2.12}{100}\dotfill &0.0212\\ t=years\dotfill &1 \end{cases} \\\\\\ I = (10000000)(0.0212)(1)\implies \boxed{I=212000}$

$~~~~~~ \textit{Compound Interest Earned Amount} \\\\ A=P\left(1+\frac{r}{n}\right)^{nt} \quad \begin{cases} A=\textit{accumulated amount}\\ P=\textit{original amount deposited}\dotfill &\ 10000000\\ r=rate\to 2.12\%\to \frac{2.12}{100}\dotfill &0.0212\\ n= \begin{array}{llll} \textit{times it compounds per year}\\ \textit{daily, thus 365} \end{array}\dotfill &365\\ t=years\dotfill &1 \end{cases}$

$A=10000000\left(1+\frac{0.0212}{365}\right)^{365\cdot 1}\implies A\approx 10214256.88 \\\\\\ \underset{\textit{earned interest amount}}{10214256.88~~ - ~~10000000 ~~ \approx ~~ \boxed{214256.88}}$

what's their difference?  well

$\stackrel{\textit{compounded daily}}{\approx 214256.88}~~ - ~~\stackrel{\textit{simple interest}}{212000}\implies \boxed{2256.88}$