Answer: the simple interest rate of 4.5%
Explanation:
What Is Simple Interest?
Simple interest is an interest charge that borrowers pay lenders for a loan. It is calculated using the principal only and does not include compounding interest. Simple interest relates not just to specific loans. It's also the type of interest that banks pay customers on their savings accounts.
The formula to determine simple interest is an easy one. Just multiply the loan's principal amount by the interest rate by the term.
This type of interest usually applies to automobile or short-term loans, although some mortgages use this calculation method.
What is compound interest?
Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on principal plus interest. It is the result of reinvesting interest, adding it to the loaned capital rather than paying it out, or requiring payment from the borrower so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Compound interest is standard in finance and economics.
Compound interest is contrasted with simple interest, where previously accumulated interest is not added to the principal amount of the current period, so there is no compounding. The simple annual interest rate is the interest amount multiplied by the number of periods per year. The simple annual interest rate is also known as the nominal interest rate (not to be confused with the interest rate not adjusted for inflation, which goes by the same name).