Earning interest in one period on interest earned in an earlier period is known as:

Question

Quizplus · Accepted Answer

Compound interest is when the interest earned in one period is added to the principal balance, and then interest is earned on the new total in the next period. This allows for the growth of the investment to increase at a faster rate than simple interest, where interest is only earned on the original principal balance. The other answer choices (simple interest, combined interest, and composite interest) do not accurately describe the concept of earning interest on interest.

Earning Interest in One Period on Interest Earned in an Earlier