Question

In 2-4 sentences, describe why compound interest earns more money than simple interest.

Answer 1

Simple interest is interest only calculated by multiplying the principal amount by the interest rate and the number of periods in a loan. However compound interest is interest on interest. It is calculated by multiplying the principal amount by the annual interest rate raised to the number of compound periods.

Answer 2

Compound Interest gives you interest based on the amount deposited and the other interests earned.Simple Interest gives the same amount each time based on only the amount deposited.The compound interest has more since it is given more money to put interest on.For example, someone has 20,000 in a bank account and has 6% of interest each year in compounded interest.The fist year he will earn 1,200 the next he will earn 1,272 and then the following he will earn 1,348.32. While in an account that has simple interest will earn 1,200 each year which adds up to less that the one with compounded interest.

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