Jack Palomo has deposited $2,500 today in an account paying 6 percent interest annually. What would be the simple interest earned on this investment in five years? If the account pays compound interest, what will be the interest on interest in five years?
A) $750; $95.56
B) $150; $845.56
C) $150; $95.56
D) $95.56; $845.56

Question

Quizplus · Accepted Answer

Simple interest is calculated as principal * rate * time, so $2,500 * 0.06 * 5 = $750. For compound interest, the total amount after 5 years is $2,500 * (1 + 0.06)^5 = $3,345.56. The interest on interest is the difference between compound and simple interest, which is $3,345.56 - ($2,500 + $750) = $95.56.

Jack Palomo Has Deposited $2,500 Today in an Account Paying