Exploring Simple vs. Compound Interest

What is compound interest?

• A fixed interest rate for the loan duration

• Interest on interest

• Interest on the initial deposit only

• Interest calculated annually only

How does simple interest differ from compound interest?

• Both are calculated on the principal and accumulated interest

• Simple interest is calculated on the principal and accumulated interest

• Compound interest is calculated on the principal only

• Simple interest is calculated on the principal only

After the first year, how much interest do Daniel and Claire each earn?

• $500

• $525

• $550

• $575

In the second year, how much more does Claire earn than Daniel?

• $100

• $75

• $50

• $25

What is Claire's total capital at the end of year 3?

• $11,576.25

• $11,525

• $11,500

• $11,600

How much more has Claire earned than Daniel by the end of year 3?

• $150

• $76.25

• $125

• $100

What is the key factor that increases the effects of compound interest over time?

• The number of years

• Interest on accumulated interest

• The interest rate

• The principal amount

Over a ten-year period, how does Claire's annual return change?

• Remains the same

• Fluctuates unpredictably

• Increases significantly

• Decreases slightly

Why is compound interest considered more beneficial in the long term?

• It offers a fixed return

• It increases returns over time

• It is easier to calculate

• It reduces the principal amount

What should one remember about the impact of compound interest?

• It is negligible in the short term

• It decreases over time

• It is constant throughout the loan period

• It grows over time