Question

Which of the following is the definition of compound interest?O A. Interest applied to both the principal and to any previously earnedinterestB. Interest applied to neither the principal nor to any previouslyearned interestC. Interest applied to any previously earned interest but not to theprincipalD. Interest applied to the principal but not to any previously earnedinterest

Answer 1

Given:

Choices for the definition of compound interest.

To determine which of the given choices is the definition of compound interest, we note first that a compound interest is computed using the principal amount as well as the accumulated interest from prior periods, and is hence known as "interest on interest."

Therefore, the answer is:

A. Interest applied to both the principal and to any previously earned interest.