Question

A banker offers customers a savings account that pays interest at a rate of 5% and is compounded quarterly. If a customer deposits $2500 into a savings account for five years , about how much more interest will he earn than if he deposits the same principal into an account that pays simple interest at 5% for 5 years ?

Answer 1

Quarterly compounding after 5 years nets $4,133.24 in compounded interest.

As for simple interest, I made an assumption that there was a 5% per quarter interest.

20% (5yrs * 4 qtrs.) gives total interest on $2,500 in the amount of $500.

Difference is $3,633.24