ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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$3, 325
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$13, 325
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$13, 838.16
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$13, 000
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Detailed explanation-1: -Answer and Explanation: It is better to have a compound interest that pays 5% interest compounded daily. This is because even though the two accounts have the same rate of interest, the frequency of the 5% interest compounded daily account is higher.
Detailed explanation-2: -In savings accounts, interest can be compounded, either daily, monthly, or quarterly, and you earn interest on the interest earned up to that point. The more frequently interest is added to your balance, the faster your savings will grow.
Detailed explanation-3: -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. Compound interest is calculated on the principal amount and the accumulated interest of previous periods, and thus can be regarded as “interest on interest.”
Detailed explanation-4: -"12% interest” means that the interest rate is 12% per year, compounded annually. “12% interest compounded monthly” means that the interest rate is 12% per year (not 12% per month), compounded monthly. Thus, the interest rate is 1% (12% / 12) per month.