Exploring the Basics of Compound Interest

What does compound interest refer to?

• Interest calculated on the initial principal only

• Interest calculated on the initial principal and all accumulated interest

• A fixed amount of interest regardless of the principal

• A government-imposed tax on savings

What principle does compound interest operate on?

• Fixed annual interest

• Interest on interest

• Decreasing interest rates

• Interest on the principal only

How much interest is earned in the second year on a $100 investment at 10% interest?

• $21

• $10

• $11

• $20

What is the interest amount for the first year on a $100 investment at 10% interest?

• $10

• $11

• $100

• $110

Why is compound interest beneficial for long-term investments?

• It decreases the total amount of money you have

• It increases risk

• It accelerates the growth of your money

• It requires more frequent payments

After 30 years, how much will $100 grow at a 10% interest rate?

• $4,526

• $1,745

• $673

• $259

What is the total amount after 50 years on a $100 investment at 10% interest?

• $11,739

• $1,745

• $673

• $4,526

Does a typical piggy bank generate compound interest?

• Yes, if parents add money secretly

• Only if it is a special financial piggy bank

• No, never

• Yes, always

Can money in a bank account earn compound interest?

• Yes, if interest is left to accumulate

• No, it only earns simple interest

• Yes, but only on special accounts

• No, banks do not offer compound interest