Question

Find the total amount if you deposit $500 at a rate of 5% for two years using simple interest.
Year 1
Year 2

Answer 1

year 1 = 500 + 0.05 * 500 = $525
year 2 = 500 + 0.05 * 500 * 2 = 550

It is a common mistake to take interest of $525 at end of year 2. But since it is simple interest hence there should not be any compounding, not even at the end of a year.