How is compound interest different from simple interest?A.Compound interest accrues daily, monthly, or quarterly rather than annually.B.Compound interest accrues only on the initial amount borrowed.C.Compound interest accrues on the interest, as well as the principal.D.Compound interest accrues on the down payment as well as the principal.SUBMITarrow_backPREVIOUS
Question
How is compound interest different from simple interest?A.Compound interest accrues daily, monthly, or quarterly rather than annually.B.Compound interest accrues only on the initial amount borrowed.C.Compound interest accrues on the interest, as well as the principal.D.Compound interest accrues on the down payment as well as the principal.SUBMITarrow_backPREVIOUS
Solution
The main difference between compound interest and simple interest lies in the way they are calculated and accrued over time.
A. Compound interest does not necessarily accrue daily, monthly, or quarterly rather than annually. The frequency of compounding can be annually, semi-annually, quarterly, monthly, daily, or continuously, depending on the terms of the agreement.
B. This statement is incorrect. Simple interest accrues only on the initial amount borrowed or invested, known as the principal.
C. This is the correct statement. Compound interest is calculated on the initial principal, which includes all of the accumulated interest of previous periods of a deposit or loan. This means that interest is earned or paid on the interest already accrued as well as the principal.
D. This statement is incorrect. Neither compound interest nor simple interest accrues on the down payment
Similar Questions
How does compound interest differ from simple interest?A.Compound interest is available only to businesses and not to individual consumers.B.Compound interest must be paid each month rather than all at once.C.Compound interest is charged to somebody who borrows money using a credit card.D.Compound interest is charged on both previous interest and the original money owed.
Which describes the difference between simple interest and compound interest?Group of answer choicesSimple interest is always a whole number. Compound interest has a decimal portion.Simple interest is calculated every period. Compound interest is calculated one time.A graph of simple interest will curve upward. A graph of compound interest will be a straight line.Simple interest is calculated on the original amount. Compound interest is calculated on the total of the original amount and any money earned in interest.
Why does compound interest earn a bigger return than simple interest?A.Simple interest is subtracted from compound interest.B.Compound interest earns interest on the original deposit plus any interest already earned.C.Compound interest is at a higher interest rate than simple interest.D.Simple interest is more basic than compound interest.
What is the difference between compound interest and simple interest on Rs. 5,000 for 2 years at 4 per cent per annum according as the interest is compounded yearly?
Which of the following is a definition of compound interest?Group of answer choicesA percentage of money deposited divided by the time it remains deposited.Money earned after the first balance has been figured.Interest earned both on money you deposit and on money you have earned in interest.Interest earned only on money you deposit.
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