Simple interest (prep swift) - what about compounding?

[cringes_squeak.0q]

Hi I have a finance background and I struggle with the answer of this solution.

For this type of question, typically I will use the formula P x (1 + r)^n where r = interest and n = period. Wouldn’t the method from prep swift ignores the compounding interest over the years since the question did ask how much money would one get by the end of the 7th year?

Thank you in advance!

[aavashstha5]

Hi there, I think because the question says that it’s a 2% “simple” annual interest rate, we have to apply the simple interest formula, not the compounding one.

[cringes_squeak.0q]

Yeah that makes sense No banks offer simple interest in my country, hence the term simple interest feels foreign to me