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Question 10 • CMS 2026-2027 Economics and Personal Finance CREDIT RECOVERY

Which describes the difference between simple and compound interest?

Answer

Simple interest is paid on small, short-term loans, while compound interest is paid on large, long-term loans.

Simple interest is paid on the principal and interest accrued, while compound interest is paid only on the principal.

Simple interest is paid on large, long-term loans, while compound interest is paid on small, short-term loans.

Simple interest is paid on the principal, while compound interest is paid on the principal and interest accrued.

Explanation

Simple interest is calculated only on the original amount borrowed or invested, called the principal. Compound interest is calculated on the principal plus interest that has already accrued. Therefore, choice C correctly describes the difference.

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