Margaret invests at 6% simple interest for six years. Pete invests at 6%, compounded annually, for eight years. Sylvia invests for eight years at 6% simple interest. Which one of the following statements is correct if all three individuals invested the same amount of money on the same day?
A) Margaret will have more money than Sylvia at the end of three years.
B) Pete will have more money than either Margaret or Sylvia at the end of four years.
C) Sylvia will have more money than either Margaret or Pete at the end of six years.
D) Margaret will have less money than Pete but more money than Sylvia at the end of five years.
E) Sylvia and Margaret will have more money than Pete at the end of six years.

Question

Quizplus · Accepted Answer

Simple interest is calculated on the principal amount only, while compound interest is calculated on the principal and also on the interest earned in previous periods. Therefore, Pete, who invests with compound interest, will have more money than Margaret and Sylvia, who invest with simple interest, given the same rate and a longer time period.

Margaret Invests at 6% Simple Interest for Six Years