identify whether the following statements about the simple and compound interest

Question

identify whether the following statements about the simple and compound interest methods are true or false. True False Statement O 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. After the end of the second year and all other factors remaining equal, a future value based on compound interest will exceed a future value based on simple interest. O O O

Explanation / Answer

1)

TRUE

Compound interest generate a greater amount of interest as it earns interest on interest. Therefore, simple interest shoudl be significantly higher.

2)

TRUE

Compound interest earns interest on interest. Simple interest only generates interest on principle.

3)

TRUE

Compound interest earns interest on interest. Simple interest only generates interest on principle.

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