How much more interest is earned on an investment of $12,585 at 3.5% interest over 5 years if the interest is compounded annually rather than earning simple interest? a. they are the same. b. $159.65 c. $2,362.03 d. $12,744.65

b. $159.65

Step-by-step explanation:

First use the compounding formula to find the amount of interest earned that way:

and filling in we have

Raise the 1.035 to the 5th power then multiply by the 12585:

A(t)= 1497.03216

That's how much money is in the account after 5 years.  To find the interest earned on the original investment, subtract 12585 from this slightly higher amount and get that this type of account earned 1497.03216 - 12585 = 2362.032157

Now use the simple interest formula to find out how much interest is earned that way:

I = Prt so I = 12585(.035)(5)

I = 2202.375

Subtract the smaller from the larger to get that the compounding formula earns you $159.65 more interest than does the simple interest formula.

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