ECONOMICS
SAVING AND INVESTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Interest earned on the principal investment.
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Any form of interest paid from saving and investing.
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Earning interest on interest.
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The effect interest has on the total return on investment.
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Detailed explanation-1: -Simple interest is based on the principal amount of a loan or the first deposit in a savings account. Simple interest doesn’t compound, which means a creditor will only pay interest on the principal amount and a borrower would never have to pay more interest on the previously accumulated interest.
Detailed explanation-2: -Definition. Simple interest is the cost of borrowing money without accounting for the effects of compounding. In other words, simple interest only applies to the principal amount.
Detailed explanation-3: -By definition, simple interest is the interest amount for a particular principal amount of money at some rate of interest. In contrast, compound interest is the interest calculated on the principal and the interest accumulated over the previous period.
Detailed explanation-4: -Simple interest is paid out as it is earned and does not become part of an account’s interest-bearing balance. The invested amount is called principal. Let’s say you invest $100 (the principal) at a yearly interest rate of 5 percent. Multiplying the principal by the interest rate gives you an interest payment of $5.
Detailed explanation-5: -When it comes to investing, compound interest is better since it allows funds to grow at a faster rate than they would in an account with a simple interest rate. Compound interest comes into play when you’re calculating the annual percentage yield. That’s the annual rate of return or the annual cost of borrowing money.