A principal amount P, at the rate of interest r per annum, after a time period t years increases to `P_f = P+P*t*r`
Compound interest refers to the situation where interest in any period is earned on both the principal and the interest earned in all the earlier periods. A principal amount P, at the rate of interest r per annum, after a time period t years increases to `P_f = P*(1+r)^t`
In the problem, the principal P = $16,300. The rate of interest is 3%, compounded quarterly.
The simple interest earned on this in 2 years is equal to 16,300*0.03*2 = 978. The ending balance is equal to 16,300 + 978 = $17,278.
As in the case of compound interest, compounding is done quarterly, the effective interest rate per period is 0.03/4, and the time period is 2*4 = 8.
The ending balance after 2 years would be 16,300*(1+0.03/4)^8 = 17,304.06.
For simple interest, the ending balance of $16,300 at 3% compounded quarterly for 2 years is equal to $17,278, and for compound interest it is equal to $17,304.06.