ECONOMICS
SAVING AND INVESTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the interest earned on the principal of an investment
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the interest earned on a mutual fund
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the interest earned on a loan
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the interest earned on both the principal and interest of an investment or savings account
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Detailed explanation-1: -Compound interest is the interest on a deposit calculated based on both the initial principal and the accumulated interest from previous periods. Or, more simply put, compound interest is interest you earn on interest . You can compound interest on different frequency schedules such as daily, monthly or annually.
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: -Mortgage compound interest means additional interest has been added to the initial loan. The longer unpaid loans sit, the more interest will accrue. When interest is compounded on mortgages, you pay interest on top of interest.
Detailed explanation-4: -Compound interest is when the interest you earn on a balance in a savings or investing account is reinvested, earning you more interest. As a wise man once said, “Money makes money. And the money that money makes, makes money.” Compound interest accelerates the growth of your savings and investments over time.
Detailed explanation-5: -Examples of Compound Interest 10, 000 is invested in a fixed deposit for 10 years. The interest is compounded every quarter which means 4 times in a year. The interest paid by the bank is 5%. To find out your nominal rate of interest, you need to divide 5 by 100 which equals 0.05.