ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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on a semiannual basis
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more than once a year
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on the principle and interest earned
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all of the above
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Detailed explanation-1: -Compound interest is the interest calculated on the principal and the interest accumulated over the previous period. It is different from simple interest, where interest is not added to the principal while calculating the interest during the next period.
Detailed explanation-2: -Compound interest is the interest on savings calculated on both the initial principal and the accumulated interest from previous periods.
Detailed explanation-3: -Simple Versus Compound Interest Simple interest is calculated only on the principal, while compound interest is interest on both the initial principal and the accumulated interest. Let’s say you invest $10, 000 in a three-year CD, earning 4% interest annually.
Detailed explanation-4: -On the other hand, the compound interest is the interest which is calculated on the principal and the interest that is accumulated over the previous tenure. Thus, the compound interest (CI) is also called “interest on interest”.
Detailed explanation-5: -Compound interest, can be calculated using the formula FV = P*(1+R/N)^(N*T), where FV is the future value of the loan or investment, P is the initial principal amount, R is the annual interest rate, N represents the number of times interest is compounded per year, and T represents time in years.