contestada

Tomas earned $89 in interest on his savings account last year and has decided to leave the $86 in his account this coming year so it will earn interest. This process of earning interest on prior interest earnings is called:__________.
1. discounting.
2. compounding.
3. duplicating.
4. multiplying.
5. indexing.

Respuesta :

Samawati

Answer:

2. compounding.

Explanation:

Compounding describes a scenario of earned interest,  earning more interest.  Compounding occurs in a compound interest-earning account. At the end of a season, the interest earned is added to the principal amount.

The beginning of every financial year will see the principal amount increase by the amount of interest earned in the previous period.  As a  result, the interest earned in subsequent years will be higher.  A compound interest-earning account will have the principal, and the interest earned increases every year until maturity.  Simple interest contrasts compound interest. In simple interest, the principal and the interest earned remain constant throughout the investment period.

Otras preguntas