Question

question 10
5 points
compound interest means that a savings account earns interest on the interest previously earned.
a true
b false
clear selection

Explanation:

Compound interest is calculated on the initial principal and also on the accumulated interest of previous periods. So, a savings account with compound interest does earn interest on the previously earned interest. For example, if you have $100$ with an annual interest rate of $10\%$ compounded annually. In the first year, the interest is $100\times0.1 = 10$, and the amount is $100 + 10=110$. In the second year, the interest is $110\times0.1 = 11$ (where $10$ is interest on the principal and $1$ is interest on the first - year's interest).

Answer:

A. True