Multiple choice

Mike invested $3,500 for 4 years at 7% annual interest rate that was compounded annually. How much less interest would he have earned if the money had instead been invested at 7% simple annual interest for 4 years?

  1. $107.79
  2. $120.79
  3. $148.20
  4. $156.45
  5. $164.50
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Compound interest = 3500 * (1 + 0.07)^4 - 3500 = 3500 * 1.310796 - 3500 = 1087.786. Simple interest = 3500 * 0.07 * 4 = 980. Difference = 1087.79 - 980 = 107.79.