Interest is a fee charged by the lender for borrowing money. We will look at two ways in which interest can be calculated; simple interest and compound interest. Let's take a look at some examples before we define these types of interest. 1) Suppose that you deposit $1500 into a savings account at The Priem-ium Bank of America, which pays a 5% interest rate each year. At the end of each year, Priem-ium Bank sends you a check for the 5% interest on the original deposit. You will continue to receive a check for the interest at the end of the year, provided that you keep the savings account open for the year. Use this information to answer the questions below. (a) (3 points) How much interest do you earn in the first year? The second year? The third year? The fourth? The fifth? (b) (2 points) What is happening to the amount of interest you earn each year? (c) (3 points) What is the total amount of interest earned over five years?(d) (2 points) What is the total worth of your investment plus interest after five years?

2) Let's assume again that you deposit $1500 into another savings account at The Priem-ium Bank of America, which also pays 5% interest per year. This time, instead of paying the interest out at the end of the year, the bank deposits the interest back into your account. (a) (2 points) How much interest do you earn in the first year?) (2 points) What is the balance of your account at the start of the second year? (c) (5 points) Complete the table for the first five years of the investment. Round to the nearest cent where appropriate. Year Starting Balance Interest Earned Ending Balance 1 2 3 4 5 (d) (2 points) What is the total amount of interest earned after five years? (e) (2 points) What is the total worth of your investment after five years?)

(3 points) How do the amounts from problem 1 and problem 2 compare? Explain why there is a difference in the final amounts of the investments