Arthur invested $500 two years ago at 5 percent interest. The first year, he earned $25 interest on his $500 investment. He left the $25 in his account instead of withdrawing the amount for spending. The second year, he earned $26.25 interest onhis $525 investment. The extra $1.25 he earned in interest the second year was due to .a. free Interest b. bonus income c. simple Interest d. Interest (earned) on interest e. present value interest

Our answer is D) interest (earned) on interest

Explanation:

interest (Earned) on interest

This is also known as compounding effect

Interest = 25

Interest on interest = 25* 5% = 1.25

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