On a certain day, Tim invested $500 at 10 percent annual interest, compounded annually, and Lana invested 1,000 at 5 percent annual interest, compounded annually.The total amount of interest earned by Tim’s investment in the first 2 years was how much greater than the total amount of interest earned by Lana’s investment in the first 2 years?  Options.
A) $ 2.5  B) $ 15  C) $ 50  D) $ 100  E) $ 105

Rationale: "compounded annually means that the interest is applied once per year . one can have 10 % annual interest compounded monthly - in this case 10 % / 12 would be applied each month , or 10 % annual interest compounded daily etc . with respect to the problem at hand , at the end of two years , tim would have 500 ( 1.10 ) ^ 2 = 500 ( 1.21 ) = 605 and lana would have 1,000 ( 1.05 ) ^ 2 = 1,000 ( 1.1025 ) = 1102.5 thus , tim earned 105 dollars , while lana earned 102.5 dollars the difference is $ 2.5 and the answer is a ."
Answer: A