4
QuizMultiple Choice

N/A — Exam

Question 4 • CMS 2026-2027 Economics and Personal Finance HONORS INITIAL CREDIT

Compound interest is usually better than simple interest because it pays

Answer
A
interest on the principal and the interest earned in each period.
B
more, as it is matched by an employer’s 401k contribution.
C
interest on the entire principal rather than the interest in each period.
D
more often throughout the year rather than once a year.

Explanation

With compound interest, each period’s interest is added to the balance, so later interest is earned on both the original principal and the interest already earned. That “interest on interest” can make the balance grow faster than with simple interest, which is calculated only on the original principal. The correct choice is A: interest on the principal and the interest earned in each period.

AI-written and checked against the verified answer.

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