Exploring the Basics of Compound Interest

What are the two main types of interest?

• Simple and complex

• Fixed and variable

• Simple and compound

• Compound and variable

How is simple interest calculated?

• On the principal and the accumulated interest

• Based on the principal amount only

• Using the compound interest formula

• It varies from bank to bank

What makes compound interest 'magical'?

• It doubles the principal amount

• Interest is earned on both the initial deposit and the accumulated interest

• It is calculated annually only

• It is less than simple interest

How does compound interest differ from simple interest?

• There is no difference

• Compound interest allows your investment to grow faster due to interest on interest

• Simple interest is calculated on the principal plus previous interest

• Compound interest is calculated on the principal amount only

What is the key difference in the growth of money in compound interest accounts?

• The interest rate increases every year

• The principal amount decreases over time

• Money grows at an accelerated rate due to interest on interest

• Interest is calculated annually only

What was the total balance after 30 years with a 5% compound interest rate?

• $50,000

• $71,247.57

• $30,000

• $23,250

How much more interest is earned through compounding over 30 years compared to simple interest?

• $17,997.57

• $18,000

• $41,247.57

• $23,250

Why is it beneficial to start investing in a compound interest account early?

• Compound interest rates decrease with age

• To maximize the effect of compounding over time

• Interest rates are higher for younger investors

• To avoid taxes

What did Albert Einstein reportedly say about compound interest?

• Those who understand it, earn it; those who don't, pay it

• It's the eighth wonder of the world

• It's the most powerful force in the universe

• It should be avoided at all costs

How can compound interest negatively affect you?

• When the interest rate is too low

• When you are investing in the stock market

• When you withdraw your money early

• When you are the one paying it, like on credit cards