Test Your Knowledge
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1. What is the main difference between compound interest and simple interest?
A) Compound interest is calculated only on the initial principal, while simple interest is calculated on both the principal and accumulated interest.
B) Compound interest is calculated on both the initial principal and accumulated interest, while simple interest is only calculated on the principal.
C) Compound interest is best for short-term investments, while simple interest is better for long-term investments.
D) Compound interest applies to debts, while simple interest applies to investments.
2. Which of the following is a benefit of compound interest?
A) It increases debt accumulation when applied to credit card balances.
B) It allows wealth to grow exponentially over time when reinvested.
C) It is only effective for short-term investments.
D) It is better suited for loans and credit cards rather than investments.
3. What factor does NOT influence the growth of compound interest?
A) Initial Investment (Principal)
B) Interest Rate
C) Number of creditors
D) Time