Formula for Simple Interest: I = PRT
P = Principal
R = Interest rate per time period in decimal
T = number of time periods
Now you just substitute: 200 x 0.05x 10 = $100 interest
Formula for Compound Interest: A = P(1 + r)^n
A = Final amount to which investment grows
P = Principal
r= interest rate per period as decimal
n= number of corresponding periods
Substitute: 200(1 + 0.05)^10 = $325.80 (rounded)
Now compare and the compound interest earns more by $225.80
