Economics · Interest and Finance
What is the key difference between simple interest and compound interest?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1There is no functional or mathematical difference between simple interest and compound interest.
- 2Simple interest is calculated on the total amount accumulated, while compound interest is calculated on the principal only.
- 3Compound interest is calculated only once during the loan period, while simple interest is calculated periodically.
- 4Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest.✓
Correct answer
Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest.
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