Jack Palomo has deposited $2,500 today in an account paying 6 percent interest annually. What would be the simple interest earned on this investment in five years? If the account paid compound interest, what would be the interest on interest in five years?
A) $750; $95.56
B) $150; $845.56
C) $150; $95.56
D) $95.56; $845.56

Question

Quizplus · Accepted Answer

Simple interest is calculated as the principal multiplied by the interest rate multiplied by the number of years. In this case, the principal is $2,500, the interest rate is 6%, and the number of years is 5. So, the simple interest earned on this investment in five years would be $2,500 x 0.06 x 5 = $750.Compound interest is calculated as the principal multiplied by the interest rate raised to the power of the number of years. In this case, the principal is $2,500, the interest rate is 6%, and the number of years is 5. So, the interest on interest in five years would be $2,500 x (1.06^5 - 1) = $95.56.

Jack Palomo Has Deposited $2,500 Today in an Account Paying