Ben should choose account X because B) it would pay interest on interest.
Compounding interest means that the interest earned on a certain period will also earned an interest on the next period of interest payment.
Let us assume the following data:
Principal: 1,000 ; interest rate = 3% ; term 1 year.
Simple interest = Principal interest rate term
S.I = 1,000 x 3% x 2 yrs = 60
Balance after 2 year = 1,000 + 60 = 1,060
Compounding Interest: Assume compounded per quarter or 4 times a year
A = P(1 + r/n)^nt
A = 1,000 (1 + 3%/4)^4x2
A = 1,000 (1.0075)^8
A = 1,000 (1.0616)
A = 1,061.60
