Gr 10 Math Ch 8: Compound Interest
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Questions and Answers

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?

    <p>Someone takes a loan with a compound interest rate.</p> 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?

    <p>$1157.63</p> Signup and view all the answers

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

    <p>It enables both the principal and interest to earn interest.</p> 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?

    <p>Interest rate</p> Signup and view all the answers

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

    <p>Interest is compounded on both principal and accumulated interest.</p> Signup and view all the answers

    When might compound interest lead to negative consequences?

    <p>When used for loans resulting in rising debt.</p> Signup and view all the answers

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

    <p>The accumulated amount after interest</p> 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?

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

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

    <p>Rapidly increasing debt due to interest on interest.</p> 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?

    <p>The growth factor for the investment including interest.</p> Signup and view all the answers

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

    <p>More compounding periods increase the accumulated amount exponentially.</p> Signup and view all the answers

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

    <p>Significantly enhanced growth compared to simple interest.</p> Signup and view all the answers

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