Question

True False All other variables held constant, investments paying simple interest have to pay significantly higher interest rates to earn the same amount of interest as an account earning compound interest. Everything else held constant, an account that earns compound interest will grow more quickly than an otherwise identical account that earns simple interest. All other factors being equal, both the simple interest and the compound interest methods will accrue the same amount of earned interest by the end of the first year.

Answer 1

Answer:

All other variables held constant, investments paying simple interest have to pay significantly higher interest rates to earn the same amount of interest as an account earning compound interest.  TRUE.

This is a true statement because compound interest is based on the previous balance in addition to the interest earnings on the balance. It therefore accrues on a higher balance than simple interest which builds on the same amount of principal throughout. Simple interest would therefore need a higher rate to bridge this gap.

Everything else held constant, an account that earns compound interest will grow more quickly than an otherwise identical account that earns simple interest. TRUE.

An account earning compound interest would increase faster than an identical one using simple interest because compound interest is based on an accrued balance whilst simple interest does not change the balance it is based on.

All other factors being equal, both the simple interest and the compound interest methods will accrue the same amount of earned interest by the end of the first year. TRUE.

At the end of the first year, an assuming yearly compounding, both simple and compound interest will yield the same result because they would be based on the same principal amount.