Find the difference in the balance between simple interest at 5% and compound interest at 6% when $900 is invested for a period of 5 years.(1 point)
Responses
$225
$225
$1,204.40
$1,204.40
$79.40
$79.40
$304.40
To find the difference in the balance between simple interest and compound interest, we can use the formulas:
Simple Interest = Principal * Rate * Time
Compound Interest = Principal * (1 + Rate)^Time - Principal
For simple interest at 5%, the balance after 5 years would be:
Simple Interest = $900 * 0.05 * 5 = $225
For compound interest at 6%, the balance after 5 years would be:
Compound Interest = $900 * (1 + 0.06)^5 - $900 = $1,204.40
The difference in the balance between simple interest and compound interest is the compound interest minus the simple interest:
Difference = $1,204.40 - $225 = $979.40 (rounded to the nearest cent)
Therefore, the correct option is $1,204.40.