What is the difference between the compound interest and the simple interest earned on 5,000 soles at 10% per year over 2 years?
Answer and explanation
Correct answer: D. 50 soles
- Step 1: Simple interest: 5,000 x 0.10 x 2 = 1,000. Compound: 5,000 x 1.10^2 - 5,000 = 1,050.
- Step 2: The difference is 1,050 - 1,000 = 50, which is 10% of the first year's interest of 500.
Answer
50 soles.
Why not the others: The other values confuse the interest on the principal with the interest on the interest.
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