Question

find the simple interest of $5000 at 6% for 2 years

Answer 1

Simple interest is just the interest accrued with interest not being compounded. Thus, 6% simple interest p.a., interest in the 1st year= 5000(.06)=300 and in the 2nd year= 5000(.06)=300. However, for an effective interest of 6%, it going to be 5000(.06)=300 in the 1st year, and 5300(.06)=318 in the second year. Note the 300 being carried forward due to the compounding effect.