What is the difference between the amounts obtained by investing $1000 at 8% per

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Question: What is the difference between the amounts obtained by investing $1000 at 8% per annum for 2 years in simple interest and compound interest?

Options:

Correct Answer: $24

Solution:

SI = 1000 * 8/100 * 2 = $160. CI = 1000(1 + 0.08)^2 = $1166.4. Difference = $1166.4 - $160 = $24.

What is the difference between the amounts obtained by investing $1000 at 8% per

Practice Questions

What is the difference between the amounts obtained by investing $1000 at 8% per annum for 2 years in simple interest and compound interest?

Questions & Step-by-Step Solutions

What is the difference between the amounts obtained by investing $1000 at 8% per annum for 2 years in simple interest and compound interest?

Step 1: Understand the two types of interest: Simple Interest (SI) and Compound Interest (CI).
Step 2: Calculate Simple Interest using the formula: SI = Principal * Rate * Time.
Step 3: Substitute the values into the formula for SI: SI = 1000 * 8/100 * 2.
Step 4: Calculate SI: SI = 1000 * 0.08 * 2 = 160.
Step 5: Calculate Compound Interest using the formula: CI = Principal * (1 + Rate) ^ Time.
Step 6: Substitute the values into the formula for CI: CI = 1000 * (1 + 0.08) ^ 2.
Step 7: Calculate (1 + 0.08) ^ 2: (1.08) ^ 2 = 1.1664.
Step 8: Now calculate CI: CI = 1000 * 1.1664 = 1166.4.
Step 9: Find the difference between CI and SI: Difference = CI - SI.
Step 10: Substitute the values: Difference = 1166.4 - 160.
Step 11: Calculate the difference: Difference = 1006.4.

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What is the difference between the amounts obtained by investing $1000 at 8% per

What’s inside this PDF?

What is the difference between the amounts obtained by investing $1000 at 8% per

Practice Questions

Questions & Step-by-Step Solutions

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