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jmc

algebra senior

Problem

Sue can either borrow dollars for years with a simple interest of annually or an interest which compounds annually for . How much more money, rounded to the nearest dollar, would she have to pay back for the more expensive interest than the less expensive interest?
Solution
For the simple interest rate, she would have to pay an interest of dollars every year. Since there are years, in the end she would have to pay back dollars.

For the compounded interest, her balance is multiplied by each year. Therefore, at the end of 5 years her balance is .

The simple interest rate would be more expensive by .
Final answer
118 \text{ dollars}