Compounding is:
A) the process of accumulation of additional interest paid on interest that has already been earned.
B) the process of adding the percentage of interest times your initial principal yearly.
C) the process of deposits steadily increasing a set amount annually.
D) None of these statements is true.

Question

Quizplus · Accepted Answer

Compounding is the process of earning interest on both the initial principal and the accumulated interest earned on that principal. This means that as interest is earned, it is added to the principal, and future interest is earned on the new, higher amount. This results in a compounding effect where interest earns interest, allowing for faster accumulation of wealth.

Compounding Is