Comparison of Simple and Compound Interest On June 30, 2010, Rolloff Inc. borrowed $25,000 from its bank,

Question:

Comparison of Simple and On June 30, 2010, Rolloff Inc. borrowed $25,000 from its bank, signing a 6% note. Principal and interest are due at the end of two years.

Required
1. Assuming that the note earns simple interest for the bank, calculate the amount of interest accrued on each of the following dates: December 31, 2010 December 31, 2011 June 30, 2012
2. Assume instead that the note earns 6% for the bank but is compounded semiannually. Calculate the amount of interest accrued on the same dates as in part (1).
3. How much additional interest expense will Rolloff have to pay with semiannual interest?

Compound Interest
Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. Thought to have originated in 17th century Italy, compound...