William invested $5,000 in an account earning 10 percent for one year. If he had left his investment in that account for another two years, he would expect the total interest earned over the three years to be higher by exactly $1,000.

Question

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The interest earned in the first year would be $500 (10% of $5,000). If left for another two years with compound interest, the interest earned would be more than $1,000 due to the interest compounding annually, not just an additional $500 per year.

William Invested $5,000 in an Account Earning 10 Percent for One