Compound interest differs from simple interest because:

A It is always lower

B Interest is earned on both the principal and previously accumulated interest

C It applies only to bonds

D It is calculated annually only

✓ Correct Answer: Option B

Compound interest: FV = PV(1+r)^n. Interest on interest creates exponential growth. Simple interest: FV = PV(1+rn). Compounding frequency matters — more frequent = higher effective rate.

💡 Why is B) the correct answer?

The correct answer to the question "Compound interest differs from simple interest because:" is Option B: Interest is earned on both the principal and previously accumulated interest.

The other options — A) It is always lower, C) It applies only to bonds, D) It is calculated annually only — are incorrect for this Pre-MBA Exam Prep question. As explained above: Compound interest: FV = PV(1+r)^n. Interest on interest creates exponential growth. Simple interest: FV = PV(1+rn). Compounding frequency matters — more frequent = higher effective rate.

📚 About This Pre-MBA Exam Prep Practice Question

This 1-level Pre-MBA Exam Prep question from the Finance topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free Pre-MBA Exam Prep practice test or use flashcards for spaced repetition review.

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Compound interest differs from simple interest because:

✓ Correct Answer: Option B

📚 About This Pre-MBA Exam Prep Practice Question

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