ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Compounded interest generally yields a larger future worth than simple interest when the interest rate is positive, and it can be seen that interest rate is always positive till now.

Detailed explanation-2: -The opposite of compounding is known as discounting. The discount factor can be thought of as the reciprocal of the interest rate and is the factor by which a future value must be multiplied to get the present value.

Detailed explanation-3: -The interest, typically expressed as a percentage, can be either simple or compounded. Simple interest is based on the principal amount of a loan or deposit. In contrast, compound interest is based on the principal amount and the interest that accumulates on it in every period.

Detailed explanation-4: -The stated statement is true. Compound interest means that the interest on the previous year is liable to more interest.

Detailed explanation-5: -When an account uses simple interest, the interest rate only applies to the principal balance. But compound interest gets applied to the principal balance and accumulated interest. Over time, an account that uses compound interest can lead to paying (or earning) more interest than one that uses simple interest.