math problem please help?

Question

what is the interest on $1200 invested for 2 years in an account that earbs simple interest at a rate if 5 % per year and tell me how to do it also

Answer 1

Interest = PRT (Principal x rate x time)

1,200 x 5% x 2 = 120

If for example a witholding tax is imposed say 20%
your net interest would be = (120 x .80)
= 96

Answer 2

first year interest

.05 * 1200 = $ 60.00 in the first year.
the second year earns a second $ 60.00
for a total of

60 + 60 = $120 over 2 years.

Now, this isn't what happens in real life.

Banks will take the $60.00 earned in the first year, add it to your original 1200 for a total of $ 1260.00 at the end of the first year and pay 5% on the new amount. This results in more interest because they pay interest on the new interest in addition to the $1200. This is known as compounded interest and is calculated like this during the second year:

1260 * .05 = $ 63.00

added to the $ 60.00 from the first year for a total of

60 + 63 = $123.00

Which would you rather have?