Compound interest is the payment of interest on the original deposit and on all accumulated interest. This means that as interest accumulates over time, it is added to the principal amount and interest is earned on the new balance. This results in a higher overall return than simple interest, which only pays interest on the original deposit.

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Compound Interest Is

Question 5

Multiple Choice

Compound interest is

A) the payment of interest on the original deposit.
B) the interest rate adjusted for the rate of inflation.
C) the same as the real interest rate.
D) the real rate of interest compounded by the rate of inflation.
E) the payment of interest on the original deposit and on all accumulated interest.

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