Compounding is the process by which interest earned on an investment is reinvested so that in future periods, interest is earned on the interest as well as the principal.

Question

Quizplus · Accepted Answer

Compounding is a real financial concept and it is true that interest earned on an investment is reinvested. This enables the investor to earn interest on the interest received in the previous period as well as the principal. This allows investments to grow faster over time.

Compounding Is the Process by Which Interest Earned on an Investment