Question

When Marquis opened his account, he was told he would always earn 5% interest as long as he kept $200 in his account. The $200 in this statement is called a:

1. Principal deposit
2. Deposit
3. Minimum balance
4. Monthly fee

Answer 1

The $200 required to earn interest in Marquis's account is best referred to as the 'principal deposit.' It is the base amount used to calculate interest earnings, as demonstrated by a $100 deposit earning $15 in simple interest over three years at a 5% interest rate.

Step-by-step explanation:

The $200 mentioned in Marquis's account condition refers to the starting amount of money he must keep in the account to earn interest. This amount, which is the core deposit upon which interest is based, is known as the principal deposit. In this scenario, the term minimum balance could also be appropriate, although it typically refers to the ongoing balance required to maintain the account, rather than strictly the amount on which interest calculations are based.

As an example of how interest is calculated for this type of account, consider a $100 deposit at a simple interest rate of 5% held for three years. Using the simple interest formula, the calculation would be: $100 × 0.05 × 3, which equals $15 of simple interest earned over the three-year period.