ECONOMICS
SAVING AND INVESTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Compound interest is a quick and easy method of calculating the interest charge on a loan.
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Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.
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Compound interest is money in your checking account
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None of the above
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Detailed explanation-1: -Compound Interest: It is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously-accumulated interest.
Detailed explanation-2: -Compound interest is the interest you earn on interest. This can be illustrated by using basic math: if you have $100 and it earns 5% interest each year, you’ll have $105 at the end of the first year. At the end of the second year, you’ll have $110.25.
Detailed explanation-3: -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: -Compound interest is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods.
Detailed explanation-5: -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.”