11
QuizMultiple Choice

Investing

Question 11 • OK-Algebra II B-CR

Which descriptions about simple interest and yearly compounded interest are true? Select four options.

Answer
A
Only compound interest has an exponent in its formula.
B
Simple interest is earned on principal and interest.
C
Compound interest earns more money than simple interest at the same rate for the same amount of time.
D
Simple interest earns more money than compound interest at the same rate for the same amount of time.
E
Simple interest is only earned on the original principal investment.
F
Only compound interest earns the same interest amount every year.
G
Only simple interest uses time in its formula.
H
Compound interest is earned on principal and interest.

Explanation

Simple interest is calculated only on the original principal, so it earns the same amount each year; this makes E true and B and F false. Compound interest is calculated on the principal plus previously earned interest, so H is true. The simple-interest formula has no exponent, while the yearly compound-interest formula includes a power such as (1 + r)^t, so A is true. Over multiple years at the same positive rate, compounding earns more than simple interest, making C true; D is false.

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