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You put $100 in an account earning 5% a year and add nothing. What is the balance after year 2?

$110.25, because year 2 interest includes interest on the first $5.

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  1. $110.25 ✔
  2. $110.00
  3. $105.00

Why: Year one gives $105. In year two you earn 5% on $105, which is $5.25, so the balance is $110.25. Simple interest would give only $110.

Huh, didn't know that: The Rule of 72: divide 72 by the interest rate to estimate years to double, about 14 at 5%.

The dad joke
A couple got married at a credit union but no one showed up. Low interest.
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References

Answer: $110.25. Year one gives $105. In year two you earn 5% on $105, which is $5.25, so the balance is $110.25. Simple interest would give only $110.

  1. Investor.gov: What is compound interest? www.investor.gov/additional-resources/information/youth/teachers-classroom-resources/what-compound-interest
    if you have $100 and it earns 5% interest each year, you'll have $105 at the end of the first year.
    Checked 2026-10-10.

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