Case-Based Critical Thinking Questions
Case 3-2
Pamela is getting ready to purchase her first condominium.To get ready for the mortgage process,she gathers her Excel spreadsheets that contain all of her financial information.
-Pamela has been told by one bank that if approved,she will have to pay a compound interest.This means that ____.
A) interest paid is equal to a percentage of principal for each period that the money has been lent
B) interest paid is calculated on the principal and any previous interest payments that have been added to that principal
C) interest paid is equal to a .05 percent of principal for each period that the money has been lent
D) interest paid is calculated on the principal and any late fees that have been added to that principal

Question

Quizplus · Accepted Answer

Compound interest is when interest is calculated on the principal amount and any previous interest that has been added to that principal. Option A describes simple interest, option C is a specific interest rate that may not apply to Pamela's situation, and option D includes late fees which are not typically included in compound interest calculations.