Adding interest earned each period to the principal for purposes of computing interest for the next period is known as ____ interest.

Question

Quizplus · Accepted Answer

Compound interest is when the interest earned in each period is added to the principal for the next period's interest calculation. This results in interest "compounding" over time and typically results in higher returns compared to simple interest, where the interest is not reinvested. Complex interest is not a recognized term in finance, and principal is just the initial amount invested.

Adding Interest Earned Each Period to the Principal for Purposes