1) An account with interest compounded annually and an APR of 2.5% increases in

Question

1)     An account with interest compounded annually and an APR of 2.5% increases in value each year by a factor of A) 1.0025
B) 1.25
C) 1.025


2)      True or False:  My money will grow exponentially if I choose to earn simple interest, I=P(APR)(Y). False True








1)     An account with interest compounded annually and an APR of 2.5% increases in value each year by a factor of A) 1.0025
B) 1.25
C) 1.025


2)      True or False:  My money will grow exponentially if I choose to earn simple interest, I=P(APR)(Y). False True

Explanation / Answer

compound interest = P(1+r)^n

eg if p= 100

r= 2.5%

A = 100(1+0.025)

therefore

every year it will increase in value each year by a factor of 1.025

2)simple interest cannot grow exponentially....only compound interest can

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