Chapter 3 Lesson 6 Compound Interest and Growth

What happens to your investment if you delay investing due to inflation?

• You miss out on potential compound interest gains.
• Your investment will always grow.
• Your purchasing power increases.
• Inflation has no impact on investments.

What is compound interest?

• Interest calculated only on the principal amount.
• Interest paid on interest already earned.
• Interest that decreases over time.
• A fixed amount added to the principal each year.

How does the total investment amount change with compound interest over time?

• It remains constant regardless of interest rates.
• It decreases as time goes on.
• It increases as the principal and interest accumulate.
• It only changes when additional deposits are made.

If you borrow money, what do you pay as a fee for using that money?

• Principal amount.
• Compound interest.
• Simple interest.
• No fee is charged.

What are the two key factors that make compound interest powerful?

• Principal amount and withdrawal frequency.
• Time and interest rate.
• Investment type and market conditions.
• Initial deposit and inflation rate.

Why is it important to invest early?

• To benefit from compound interest over time.
• To ensure a fixed return.
• To avoid paying taxes.
• To minimize risks associated with stocks.

If you invest $1,000 at a 10% interest rate, how much will it grow to in 10 years?

• $3,000
• $2,594
• $2,000
• $1,500

What is the difference between compound interest and compound growth?

• Compound interest is earned on the principal, while compound growth is not.
• Compound interest is based on fixed rates, while compound growth is variable.
• There is no difference; they are the same concept.
• Compound interest applies only to savings, while compound growth applies to all investments.

How does inflation affect the purchasing power of money over time?

• It reduces the purchasing power of money.
• It has no effect on purchasing power.
• It only affects investments, not cash.
• It increases the value of money.

What does the time value of money imply?

• Money today is worth less than the same amount in the future.
• Money today is worth more than the same amount in the future.
• Money has no value over time.
• The value of money remains constant over time.