Question

Michelle invests her money in an account earning simple interest. What can she expect to happen to the balance of her account.

Answer 1

A.

The balance will increase linearly.

Step-by-step explanation:

Answer 2

She can expect a linear growth (slow but steady) in her investment. Michelle's interest in a simple interest investment is the amount she accrued on deposits with a certain interest rate. It is based on the original sum of money known as the "principal" which she invested. When someone make a payment on a simple interest loan, the payment goes through that month's interest, and the remainder goes toward the principal. Each month's interest is paid in full so it never accrues-- compounding doesn't occur. There is a big difference in the amount of interest payable on a loan if interest is calculated on a compound rather than on a simple basis which is what simple interest entails and this is why simple interest doesn't accrue as much as compounding your interest since the Interest is calculated only on the principal amount.