Question

Jaiden invests his money in an account that compounds interest annually. What can he expect to happen to the balance of his account. A. The balance will increase linearly. B. The balance will increase more and more each year, but it will not be linear. C. The balance will increase for a while and then stay the same. D. The balance will stay the same.

Answer 1

Option B. The balance will increase more and more each year, but it will not be linear. Unlike simple interest that tends to produce linear graphs; the returns when compounded can get very astronomical. The mathematics behind compound interest is "multiplication". Your funds get multiplied, not added or decreased and this is because the previous interest is accrued on the principal and the current interest. Unlike compound interest simple interest is linear, it increases (or decreases) steadily. As time goes on with simple interest,  one's returns increases very steadily but this is unlike compound interest.  So yes,  Option B,  the balance will increase more and more each year, but it will not be linear.