Consider a deposit of $10,000 in an account that promises 5% interest, compounded continuously. By the end of five years, the interest on interest is closest to:
A) $340.25
B) $250.00
C) $840.25

Question

Quizplus · Accepted Answer

The interest on interest is the difference between the total interest earned and the simple interest earned. The total interest earned is $10,000 * 0.05 * 5 = $2,500. The simple interest earned is $10,000 * 0.05 * 5 = $2,160. Therefore, the interest on interest is $2,500 - $2,160 = $340.

Consider a Deposit of $10,000 in an Account That Promises