If $3000 is deposited in an account that pays 5% interest, what is the difference in the amount after 4 years between the amount earned if the principal is compounded annually and the amount earned calculated using simple interest?
If the interest is compounded annually, then A = P*(1+r/n)^(n*t) A = 3000*(1+0.05/1)^(1*4) A = 3646.51875 which rounds to 3646.52 Call this value x, so x = 3646.52 ----------------------------------- If the interest is compounded using simple interest, then A = P*(1+r*t) A = 3000*(1+0.05*4) A = 3600 Call this value y, so y = 3600 ----------------------------------- Now subtract x and y x-y = 3646.52-3600 = 46.52 ----------------------------------- Therefore the answer is choice C) $46.52
