BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Taking out a 30-year mortgage to purchase your new home.
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Investing your retirement savings in a mutual fund through your 401(k).
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Neither of these situations is describing compound interest working for you.
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Both situations are describing compound interest working for you.
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Detailed explanation-1: -Essentially, compounding interest is the act of reinvesting the interest your 401(k) has earned back into your investments. Then that growth earns additional interest the following year. Each year, the growth your 401(k) has earned gets reinvested and continues to compound on top of each other.
Detailed explanation-2: -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.
Detailed explanation-3: -Tax-Deferred Earnings When you contribute a percentage of your pay to a 401(k) plan, you immediately start paying less to Uncle Sam. That’s because your contribution comes out of your paycheck before income taxes are deducted. That means your taxable income is less, which in turn lowers your tax bill.
Detailed explanation-4: -a. Compound interest means that interest in future periods is earned on the interest earned in the past, whereas under simple interest, interest is earned only on the original investment.