How does simple interest differ from compound interest? A. Simple interest rates are between 1-5% while compound interest rates are over 5%.
B. Simple interest is calculated on the principal as well as the interest you’ve already earned; compound interest is calculated on principal alone.
C. You earn simple interest in a savings account and compound interest on an investment.
D. Simple interest is calculated on principal alone; compound interest is calculated on the principal as well as the interest you’ve already earned.

D. Simple interest is calculated on principal alone; compound interest is calculated on the principal as well as the interest you’ve already earned.

Explanation:

Simple interest a constant figure throughout the loan or investment period. It remains a fixed amount because it is calculated base on the principal amount only. Usually, simple interest is a percentage of the principal amount. As long as the principal amount does not change, simple interest will not change.

Compound interest is calculated based on the total of the interest earned in the previous period and the principal amount. It means interests earned in a period is added to the principal amount at the end of the period. Compound interest earned increases every financial period.

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