Compounding interest assumes the interest on an investment is reinvested.

Question

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Compounding interest is a calculation of interest where the interest earned on an investment is added to the principal amount, and the total amount (principal + interest) becomes the new basis for further interest calculations. This assumes that the interest is reinvested and earns additional interest, resulting in exponential growth of the investment over time.

Compounding Interest Assumes the Interest on an Investment Is Reinvested