Jamie deposits $1,000 into an account that pays 4% interest compounded annually. Chris deposits $1,000 into an account that pays 4% simple interest. Both deposits were made today. Chris will never earn any interest on interest.

Question

Quizplus · Accepted Answer

Simple interest is calculated only on the principal amount, or on that portion of the principal amount which remains unpaid. Thus, Chris will earn interest on the original $1,000 each year, but not on any interest accrued from previous years.

Jamie Deposits $1,000 into an Account That Pays 4% Interest