The statement that demonstrates the correct calculation for simple interest is " A principal balance of $10,000 at 5% interest earns $500 each year as interest.
What is a simple interest?
Simple interest is based on the principal amount of a loan or the first deposit in a savings account.
Simple interest does not compound interest on an interval basis. For instance quarterly, semi annually, annually etc. This are carried out in the case of compound interest.
Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on principal plus interest.
Hence base don the explanation above, the statement that demonstrates the correct calculation for simple interest is " A principal balance of $10,000 at 5% interest earns $500 each year as interest.
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