Centre Bank pays 2.5 percent interest,compounded annually,on its savings accounts.Country Bank pays 2.5 percent simple interest on its savings accounts.You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today.The amount you must deposit today:
A)is the same regardless of which bank you choose because they both pay compound interest.
B)is the same regardless of which bank you choose because they both pay simple interest.
C)is the same regardless of which bank you choose because the time period is the same for both banks.
D)will be greater if you invest with Centre Bank.
E)will be greater if you invest with Country Bank.

Question

Quizplus · Accepted Answer

Simple interest results in less interest accumulation over time compared to compound interest, so you need to deposit more initially with Country Bank to reach the same future amount.

Centre Bank Pays 2