Gr 10 Math Ch 8: Compound Interest

What distinguishes compound interest from simple interest?

Compound interest earns interest on both the principal and accumulated interest. (correct)

Simple interest allows interest on previously accrued interest.

Both types of interest result in the same total amount over time.

Only the principal amount earns interest in compound interest.

In the formula for compound interest, what does the variable 'n' represent?

The initial investment amount

The interest rate in decimal form

The number of years the money is invested or borrowed (correct)

The total amount accumulated after interest

Which of the following statements about compound interest is true?

Using compound interest will always result in lower amounts owed on loans.

With compound interest, the principal does not grow over time.

The effect of compound interest is exponential growth in investments. (correct)

Compound interest is generally less favorable for investments than simple interest.

Which of the following scenarios best illustrates the disadvantage of compound interest?

Someone takes a loan with a compound interest rate. Signup and view all the answers

If a principal amount of $1000 is invested at an interest rate of 5% compounded annually for 3 years, what is the accumulated amount?

$1157.63 Signup and view all the answers

What is the main advantage of using compound interest for investments?

It enables both the principal and interest to earn interest. Signup and view all the answers

If $500 is invested at an interest rate of 4% compounded annually for 5 years, which component of the compound interest formula does '4%' represent?

Interest rate Signup and view all the answers

Which aspect of compound interest contributes to exponential growth in investments?

Interest is compounded on both principal and accumulated interest. Signup and view all the answers

When might compound interest lead to negative consequences?

When used for loans resulting in rising debt. Signup and view all the answers

In the compound interest formula, what does the term 'A' represent?

The accumulated amount after interest Signup and view all the answers

What is one key reason why the growth of an investment using compound interest is faster than using simple interest?

Interest is earned on the accumulated interest as well as the principal. Signup and view all the answers

In the context of loans, what outcome does compounding interest tend to produce over time?

Rapidly increasing debt due to interest on interest. Signup and view all the answers

Given the formula $A = P(1 + i)^n$, what does the term $(1 + i)$ specifically represent in this context?

The growth factor for the investment including interest. Signup and view all the answers

How does the number of compounding periods affect the total accumulated amount in the compound interest formula?

More compounding periods increase the accumulated amount exponentially. Signup and view all the answers

What is a likely consequence of applying compound interest to savings over a long duration?

Significantly enhanced growth compared to simple interest. Signup and view all the answers