Tim has $100 in a bank account paying 2% interest per year.At the end of 5 years,Tim's bank account balance will be $110 if interest is not compounded,but will be greater than $110 if interest is compounded.

Question

Quizplus · Accepted Answer

Since the interest is not compounded, Tim will earn a simple interest of 2% per year for 5 years, which will be $10 (2% of $100) per year. Therefore, his bank account balance will be $110 at the end of 5 years.

However, if interest is compounded annually, Tim's balance will be greater than $110 because he will earn interest on his interest. Therefore, the statement is true.

Tim Has $100 in a Bank Account Paying 2% Interest