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Second statement is true concerning these accounts that is at the end of five years.
Chris will have more money in his account than Jamie because Chris had to pay simple interest rather than compound interest.
What is simple interest?
Simple interest is interest calculated on the principal portion of a loan or the original contribution to a savings account.
Simple interest does not compound, meaning that an account holder will only gain interest on the principal, and a borrower will never have to pay interest on interest already accrued.
The formula of simple interest is A=P(1+rt)
where, A= Final amount
P= initial principal balance
r= annual interest rate
t= time (in years)
"Examples : Kara takes out a new short-term personal loan. The loan is a $20,000 auto loan with 3 percent interest for five years, meaning that she’ll owe $3,000 over the life of the loan: $20,000 x .03 x 5. Each month, $50 of her payment goes toward interest on the loan"
what is 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.
It is the result of reinvesting interest, or adding it to the loaned capital rather than paying it out, or requiring payment from borrower.
So that interest in the next period is then earned on the principal sum plus previously accumulated interest. Compound interest is standard in finance and economics.
The formula of Compound Interest is A=P(1+r/n)nt
where, A= Final amount
P= initial principal balance
r= annual interest rate
n=number of times interest applied per time period
t =number of time periods elapsed
If an amount of $5,000 is deposited into a savings account at an annual interest rate of 5%, compounded monthly, the value of the investment after 10 years can be calculated as follows...
P = 5000.
r = 5/100 = 0.05 (decimal).
n = 12.
t = 10.
If we plug those figures into the formula, we get the following:
A = 5000 (1 + 0.05 / 12) (12 * 10) = 8235.05.
So, the investment balance after 10 years is $8,235.05.
Hence, option B is the correct answer
Learn more about Simple interest here
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