BUSINESS ADMINISTRATION
BUSINESS MATHEMATICS
Question
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Interest is calculated only on previously earned interest


Interest is calculated on the original principal plus accumulated interest


Interest is calculated only on the original principal


Interest is calculated only at the beginning of the term

Detailed explanation1: Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one. The total initial amount of the loan is then subtracted from the resulting value.
Detailed explanation2: Answer and Explanation: Compound interest is the interest earned on the already earned interest amount whereas simple interest is the interest earned on the principal amount. Due to the compounding effect, the initial principal investment grows at a faster rate as compared to the growth achieved by simple interest.
Detailed explanation3: Interest can be calculated in two ways: simple interest or compound interest. Simple interest is calculated on the principal, or original, amount of a loan.
Detailed explanation4: Compound interest is interest calculated on an accountâ€™s principal plus any accumulated interest. If you were to deposit $1, 000 into an account with a 2% annual interest rate, you would earn $20 ($1, 000 x . 02) in interest the first year. Assuming the bank compounds interest annually, you would earn $20.40 ($1, 020 x .
Detailed explanation5: Compound interest is interest computed on the original principal as well as on any accumulated interest. The period of time between two interest payments is called the compounding period.