Question

You come across a quote by Benjamin Franklin that says, “Money makes money. And the money that money makes, makes more money.”

Mr. Franklin was talking about the fact that your savings account will earn interest on your deposit the first year, and the next year, it will earn interest on your initial deposit plus the interest that you earned the first year.

What type of interest is being described?
Question 6 options:

Variable interest


Deferred interest


Compound interest


Simple interest

Answer 1

Compound interest — interest earned on both the initial principal and on the accumulated interest from prior periods.