A principal amount, at a rate of simple interest r per annum, after a time period t years increases to `P_f = P+P*t*r`
Compound interest refers to the situation where interest in any period is earned on both the principal and the interest earned in all the earlier periods. A principal amount P, at the rate of interest r per annum, after a time period t years increases to `P_f = P(1+r)^t`
In the problem, the principal P = $3,000. The rate of interest is 8%, and the time period is 2 years.
The simple interest earned on $3,000 in 2 years is equal to 3,000*0.08*2 = 480. The ending balance is equal to 3,000+480 = $3480.
In the case of compound interest, the ending balance after 2 years would be 3,00o*(1+0.08)^2 = 3,499.2.
The ending balance of $3,000 at an interest rate of 8% after 2 years is equal to $3,480 if simple interest is applied, and it is equal to $3,499.2 if compound interest is applied.