# Debbie's question from Facebook on interest rates

#### Jameson

Staff member
I'm needing help w/ an accounting issue that deals with applying interest annually. The interest rate is 10%. It doesn't say if it's compounded or simple so which is to be used?

If you start with a balance of \$20323.64 in Jan, and make twelve monthly payments of \$200 each (total \$2400) how much$ in interest is charged, when is it applied (Jan, monthly, or Dec etc?) and what's the ending balance for the year?

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#### Sudharaka

##### Well-known member
MHB Math Helper
I'm needing help w/ an accounting issue that deals with applying interest annually. The interest rate is 10%. It doesn't say if it's compounded or simple so which is to be used?

If you start with a balance of \$20323.64 in Jan, and make twelve monthly payments of \$200 each (total \$2400) how much$ in interest is charged, when is it applied (Jan, monthly, or Dec etc?) and what's the ending balance for the year?

I don't think it matters whether the interest is simple or compound if it is applied in January or December on an annual basis provided that you want to find the balance at the end of the first year. Suppose the interest is calculated each January. At the moment of calculation you have a balance of $$\ 20323.64$$ in the account and the interest gained in the first year is therefore, $$\ 20323.64\times \frac{10}{100}$$. So at the end of the first year you will have a balance of,
$\ 20323.64+\2400+\left(\ 20323.64\times \frac{10}{100}\right)$