ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Alfie says that Ingrid’s savings account earns simple interest.
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Ashlynn says that Ingrid’s savings account earn compound interest.
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Either A or B
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None of the above
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Detailed explanation-1: -You can calculate the simple interest you’ll earn in a savings account by multiplying the account balance by the interest rate by the time period the money is in the account. Note that the interest in a savings account is money you earn, not money you pay. Here’s the simple interest formula: Interest = P x R x T.
Detailed explanation-2: -Suppose you deposit $5, 000 into a savings account, don’t deposit or withdraw any more money, and the interest rate doesn’t change. If the account has a 1.00% interest rate and the interest compounds annually-that is, the bank pays you interest on your balance once each year-you’ll earn $50 after the first year.
Detailed explanation-3: -Fixed Deposits (FD) offers the highest rate of interest, ranging from 4 to 7.25 percent.
Detailed explanation-4: -A compound interest account pays interest on the account’s principal balance and any interest it had previously accrued. Because higher principals net higher returns, and higher returns then add to those principals, growth from compounding becomes progressively stronger with time.