Explanation

The primary difference between nominal and real interest rates is that:

• Real interest rates are adjusted for inflation.
• While nominal interest rates are not.
• Real interest rates reflect the actual purchasing power of the interest earned.
• While nominal interest rates do not account for inflation's erosion of purchasing power.

Explanation

The principal is the initial amount of money borrowed or invested, before interest is added or earned.

It is the base amount used to calculate interest.

It is often referred to as the original investment or loan amount.

Explanation

Explanation

The calculation of compound interest is affected by the principal amount, interest rate, and number of compounding periods, but not by the inflation rate.

Inflation rate affects the purchasing power of the interest earned, but not the calculation of compound interest itself.

Explanation

When interest is compounded more frequently, the effective annual rate (EAR) increases.

As the interest earns interest more often, resulting in a higher effective rate of return.

This means the investment grows faster over time.