The interest is calculated on the principal only, showing that the graph of interest over time is a straight line.
Just like output values in an exponential function increase by a common factor, compound interest grows according to a common multiplier based on the interest rate.
The formula to calculate compound interest has the same structure as the general equation for exponential growth.
The graph of the amount in the account over time follows an exponential curve increasing from left to right.
1 answer
The statement that "The interest is calculated on the principal only, showing that the graph of interest over time is a straight line." is not a way to explain that compound interest grows exponentially.
This statement describes simple interest, where interest is calculated solely on the principal, resulting in a linear growth pattern. In contrast, compound interest is calculated on the accumulated interest as well as the principal, leading to exponential growth.
