Question

Kevin had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Kevin earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as:A. simple interest.

B. interest on interest.
C. discounted interest.
D. complex interest.
E. compound interest.

Answer 1

C. discounted interest

Step-by-step explanation:

Compound interest increases every year, unlike simple interest, which remains constant. The reason why compound interest amount increase is because the interest earned also earns interest. The term compounding refers to adding interest earned to the principal amount. This makes the interest gained in the subsequent period higher as it will be based on a larger principal amount.

Kevin earned a higher interest in the second year because his principal amount increased in the second year. The interest he earned in the second year was added to the principal amount of $6000. He must have a compound earning interest account