PRC-2 · Chapter 4 · Question 32 of 60
What is the primary mathematical difference between 'Simple Interest' and 'Compound Interest'?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Simple interest is calculated only on the original principal, whereas compound interest is calculated on both the principal and the accumulated interest of previous periods.
Explanation
In simple interest, the interest amount remains constant because it applies only to the initial capital. In compound interest, the 'interest on interest' effect causes the debt or investment to grow exponentially.
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