Explanation

Simple interest is calculated as a percentage of the original principal amount, without considering any accrued interest.

Compound interest takes into account both the original principal and any interest that has accumulated over time.

Explanation

The principal is the initial amount of money borrowed or invested.

It serves as the basis for calculating interest.

It is the original amount before any interest is earned or paid.

Explanation

Compound interest is typically used in personal loans and mortgages

As it takes into account the accrued interest over time.

It resulting in a higher total interest paid over the life of the loan.

Explanation

In finance, EAR stands for Effective Annual Rate.

It is also referred to as the Effective Annual Interest Rate.

It is the rate of interest that is paid on a loan or investment after the compounding period is considered.

Explanation

After the first year, the interest earned is $500 x 6% = $30, making the total amount $500 + $30 = $530.

In the second year, the interest is calculated on the new principal balance of $530, resulting in $530 x 6% = $31.80.

Adding this interest to the principal, we get $530 + $31.80 = $561.80.

Explanation

Simple interest does not take into account the frequency of compounding.

As it is calculated only on the principal amount and does not consider any interest accrued over time.

Explanation

The interest earned per year is $2000 x 4% = $80.

Since the investment is for 3 years.

The total interest earned is $80 x 3 = $240.

Explanation

APR stands for Annual Percentage Rate.

It is the interest rate charged on a loan or credit product over a year.

Including fees and other costs, expressed as a percentage of the loan or credit amount.

Explanation

The principal is the initial amount of money borrowed or invested.

It serves as the basis for calculating interest.

It is the original sum of money before any interest is earned or paid.

Explanation

The longer the investment period, the more time the interest has to compound and grow.

It resulting in a greater amount of compound interest earned.

This means that a longer investment period will yield a higher return on investment.