David purchases a government bond that pays a fixed interest rate semi-annually. Interest is added to the principal amount, and subsequent interest calculations are based on the updated principal. What type of interest is David earning?

Question

David purchases a government bond that pays a fixed interest rate semi-annually.  Interest is added to the principal amount, and subsequent interest calculations are based on the updated principal. What type of interest is David earning?

Simple Interest

Compound Interest

Prime Interest

GPT-4o mini · Answer

David is earning **Compound Interest**. This is because the interest is added to the principal amount, and subsequent interest calculations are based on the updated principal.