Question

A $500 principal in a savings account paying an annual interest rate of 8% will earn $40 in interest at the end of the year. Interest for the next year will be applied to $540. A. Commission B. Sales tax C. Compound interest D. Simple interest

Answer 1

I believe that is compound interest because not only is it applying interest to the $500, but it is applying it to the money you were given after this year.

Answer 2

The correct answer is Option D - simple interest.

Explanation:

Simple interest formula is :

`I= p* r* t`

p = 500

r = 8% or 0.08

t = 1

So,
`I=500*0.08*1` = $40

Making the total amount =
`500+40=540` dollars

So, this is Simple interest. The interest is earned on the principle amount and the next year $540 will be principle amount.