Problem 387

Problem 387

How much less interest is earned at 6% simple interest for 5 years on a $10,000 investment than a 6% rate compounded daily for 5 years?

 

Solution

Interest first case

= 10000 * 0.06 * 5

= $ 3000

Compound Interest = 10000 (1 + *100)^365*5

= 10000 (1.00016438)¹⁸²⁵

= 10000(1.349825) = $13498.25

Interest = 13498.258 – 10000 = 3498.25

So difference is 3498.25 – 3000 = $498.25

So $498.25 less is earned at 6% simple interest than 6% compound interest