Asked by
Pradeep Prasanna
on Dec 09, 2024
Verified
The I.C. James Co. invested $10,000 six years ago at 5% simple interest. The I.M. Smart Co. invested $10,000 six years ago at 5% interest which is compounded annually. The I.M Smart Co. will earn $525 interest in the second year.
Simple Interest
The calculation of interest paid only on the original amount of money invested, not on the interest it has already earned.
Compounded Annually
Describes the process by which an investment's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time.
- Identify the differences between simple interest and compound interest.
- Acquire knowledge on the role of compounding frequency in determining future values.
Verified Answer
MP
Learning Objectives
- Identify the differences between simple interest and compound interest.
- Acquire knowledge on the role of compounding frequency in determining future values.