Compound Interest Quiz

Interest calculated on the initial principal and subtracted from the accumulated interest

Interest calculated only on the initial principal

Interest calculated on the initial principal and the total amount after interest

Interest calculated on the initial principal and also on the accumulated interest from previous periods (correct)

Simple interest is used for shorter time periods, while compound interest is used for longer time periods

Simple interest is calculated on the total amount, while compound interest is calculated only on the initial principal

Compound interest includes interest on interest, while simple interest does not (correct)

Compound interest is calculated daily, while simple interest is calculated annually

Higher compounding frequency leads to a decrease in the initial principal

Compounding frequency has no effect on compound interest

Higher compounding frequency leads to higher effective interest rates (correct)

Higher compounding frequency reduces the total interest earned