Question

1. Compare the interest earned on $15,000 for 25 years at 7% simple interest with the amount of interest earned if interest were compounded annually.
2. Bank A pays 6% simple interest on its savings account balances. Bank B pays 5.5% interest compounded annually. If you made a $10,000 deposit in each bank, which bank provides you more money at the end of 15 years?

Answer 1

Formula used :

Simple interest = principal× rate of interest/100× time period

Compound interest = principal(1+rate of interest/100) - principal

1) compound interest is more rewarding than simple interest.

2)

Bank B offering 5.5% interest compounded annually is more profitable than Bank A offering 6% simple interest annually.