Mr. Simpson deposits his money in a savings account at the Springfield Bank. Would he earn more money with simple interest or with compound interest?
Responses
A Simple interest earns more because simple interest always has a higher rate.Simple interest earns more because simple interest always has a higher rate.
B He would earn the same amount, as these are different terms for the same thing.He would earn the same amount, as these are different terms for the same thing.
C Simple interest earns more because the interest is determined annually on the original amount.Simple interest earns more because the interest is determined annually on the original amount.
D Compound interest earns more because the amount on which interest is paid increases over time.
D Compound interest earns more because the amount on which interest is paid increases over time.
The correct answer is D: Compound interest earns more because the amount on which interest is paid increases over time.
To explain how to arrive at this answer, let's first understand the difference between simple interest and compound interest.
Simple interest is calculated only on the initial principal amount that is deposited, which remains constant over time. The interest is determined annually on this original amount.
Compound interest, on the other hand, is calculated not only on the initial principal amount but also on the accumulated interest that has been earned over time. As interest is added to the account, the total amount grows, resulting in higher interest payments in subsequent periods.
In Mr. Simpson's case, compound interest would enable him to earn more money. This is because with compound interest, the interest earned in each period is added to the principal, leading to a larger amount on which interest is calculated for the next period. Over time, the compounding effect allows the interest earned to increase exponentially, resulting in higher overall returns.
So, to summarize, Mr. Simpson would earn more money with compound interest because the amount on which interest is paid increases over time, while simple interest only pays interest on the initial principal amount.
D Compound interest earns more because the amount on which interest is paid increases over time.
Homer wants to borrow money from the Springfield Bank to buy a new trampoline. The bank requires collateral for a loan. What is collateral?
Responses
A a signed statement that the loan will be repaida signed statement that the loan will be repaid
B an increased interest rate for a high risk loanan increased interest rate for a high risk loan
C something of value which the bank will receive if the loan is not repaidsomething of value which the bank will receive if the loan is not repaid
D money deposited in the bank which is greater than the amount of the loan
C something of value which the bank will receive if the loan is not repaid
Which of these is NOT an example of a fixed expense in a budget?
Responses
A car paymentcar payment
B mortgage paymentmortgage payment
C car insurance paymentcar insurance payment
D expenses for a birthday party