Question

What is the difference between simple interest and compound interest?(1 point)
Responses

A simple interest rate earns interest only on the principal, while compound interest earns interest on any interest accrued over time as well.
A simple interest rate earns interest only on the principal, while compound interest earns interest on any interest accrued over time as well.

Compound interest is unpredictable, and does not allow savers to calculate interest earned over time like simple interest.
Compound interest is unpredictable, and does not allow savers to calculate interest earned over time like simple interest.

Simple and compound interest rates both change based on an index, but only simple interest rates collect interest on the original principal.
Simple and compound interest rates both change based on an index, but only simple interest rates collect interest on the original principal.

Compound interest is better for borrowers of money, while simple interest works harder for investors and savers.

Answer 1

The correct response is:

**A simple interest rate earns interest only on the principal, while compound interest earns interest on any interest accrued over time as well.**

This statement clearly distinguishes between the two types of interest: simple interest is calculated solely on the principal amount, while compound interest takes into account accumulated interest from previous periods.