An account paying annual compound interest was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the same interest rate is offered on an account paying simple interest, how much income would be earned over the same time period?
A) $86.20
B) $92.47
C) $413.80
D) $436.29
E) $500.00

Question

Quizplus · Accepted Answer

To find the simple interest, first determine the compound interest rate using the formula for compound interest: A = P(1 + r)^n. Here, A = $1,500, P = $1,000, and n = 10. Solving for r gives approximately 0.0414 or 4.14%. For simple interest, use I = P * r * t, where P = $1,000, r = 0.0414, and t = 10. This results in $413.80.

An Account Paying Annual Compound Interest Was Opened with $1,000