The I.C. James Co. invested $10,000 six years ago at 5% simple interest. The I.M. Smart Co. invested $10,000 six years ago at 5% interest which is compounded annually. The I.M Smart Co. will earn $525 interest in the second year.

Question

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The I.M. Smart Co. will earn $525 interest in the second year because the interest is compounded annually. This means that the interest earned in the first year is added to the principal, and then the interest earned in the second year is calculated on the new principal amount.

The IC James Co