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Interest Crash Course Quiz

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Questions and Answers

What is the main difference between simple and compound interest?

Compound interest is paid out more frequently than simple interest

Simple interest is calculated more frequently than compound interest

Simple interest is always higher than compound interest

Compound interest is calculated on both the principal amount and the interest accumulated, while simple interest is calculated only on the principal amount (correct)

Why did Albert Einstein reportedly call compound interest the eighth wonder of the world?

Because it is the easiest to understand

Due to its simplicity in calculation

Due to the exponential growth it offers over time (correct)

Because it is the most common type of interest

How is interest usually expressed?

As a fixed amount per month

As a variable amount per quarter

As a percentage per year (correct)

As a percentage per month

In simple interest, the interest rate is applied to which amount?

The principal amount only Signup and view all the answers

What is the primary factor that determines the interest earned in a savings account?

The amount of money in the account and the interest rate Signup and view all the answers

What are the two main groups that interest usually falls into?

Simple or compound Signup and view all the answers

How is interest usually expressed?

As a percentage per year Signup and view all the answers

What is simple interest and how is it calculated?

Simple interest is calculated based on the principal amount only. For example, if you have $1,000 earning 2% interest for a year, it would grow to $1,020 when the interest is paid at the end of the year. Signup and view all the answers

What is compound interest and why did Albert Einstein reportedly call it the eighth wonder of the world?

Compound interest is calculated on the initial principal and also on the accumulated interest of previous periods. Albert Einstein reportedly called it the eighth wonder of the world due to its ability to exponentially grow wealth over time. Signup and view all the answers

What is interest, and how is it related to savings accounts?

Interest is the money paid to you by the bank as a reward for keeping your money with them. It is related to savings accounts as it is calculated based on the amount of money in the account. Signup and view all the answers

Study Notes

Interest

Interest is related to savings accounts and is usually expressed as a percentage.
There are two main groups that interest usually falls into: simple interest and compound interest.

Simple Interest

Simple interest is calculated by applying the interest rate to the initial principal amount.
The interest rate is applied to the initial amount, not the accumulated interest.

Compound Interest

Compound interest is calculated by applying the interest rate to both the principal amount and any accrued interest.
Albert Einstein reportedly called compound interest the eighth wonder of the world due to its powerful and rapid growth.
Compound interest earns interest on both the principal and any accrued interest, leading to exponential growth.

Factors Affecting Interest Earned

The primary factor that determines the interest earned in a savings account is the interest rate.

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Description

Test your knowledge of interest with this quick crash course quiz! Learn the difference between simple and compound interest, and discover why compound interest was dubbed the "eighth wonder of the world" by Albert Einstein. Perfect for anyone looking to understand the basics of interest and how it affects savings and investments.