The Notion of Compound Interest Means That

question 39

Multiple Choice

The notion of compound interest means that:

• A) if you leave a lump sum (some dollar amount) in the bank for some period, it will only accumulate interest on the principal (the original amount you deposited).
• B) if you leave a lump sum (some dollar amount) in the bank for some period, it will accumulate interest both on the principal and on any accumulated interest.
• C) any amount you borrow will accumulate more and more interest, no matter how much you pay back.
• D) the demand for loanable funds is upward-sloping.
• E) your interest will grow, but never at a rate higher than 13%.

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Definitions:

RRSP

Registered Retirement Savings Plan, a retirement savings plan for individuals in Canada that is tax-deferred until withdrawal.

Compounded Monthly

The process where interest is added to the principal sum of a deposit or loan each month, resulting in "interest on interest."

Compounded Annually

Interest calculation method where interest is added to the principal at the end of the year, affecting the total interest earned or paid.

RRSP

Registered Retirement Savings Plan, a Canadian account for holding savings and investment assets, with certain tax benefits.