Question 16 The calculation of simple interest for a $100,000 investment at 6% for 5 years...

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Question

Question 16

The calculation of simple interest for a $100,000 investment at 6% for 5 years would be

A) Less than compound interest

B) More than compound interest

C) The same under both simple and compound interest since the amount is under $125,000

D) The same under both simple and compound interest since the amount is under $155,000

Answer 1

Answer #1

Simple interest is Calculated on the Principle Amount whereas Compount Interest is calculated on the compound Value

Simple Interest		Principle* Rate * Time
		$1000006%5
		$30,000


Compound Interest		Principle ( 1+Rate)n

Future Value		100000(1.06)5

Future Value		$100000(1.061.061.061.061.06)
Future Value		133822.6

Compund Interest		$ 133822.6-$100000
		33822.6

From the above, we can say that simple interest is less than compound interest

The correct answer is A) Less than Compound Interest

Answer 2

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