🦷 DAT Exam Prep

Compound interest formula A = P(1 + r/n)^(nt) differs from simple interest because:

A They are the same
B Compound interest earns interest on previously accumulated interest
C Simple interest is higher
D Compound interest uses only principal

✓ Correct Answer: Option B

Compound interest: interest earned is added to principal, then future interest is calculated on the new total. Exponential growth vs. linear.

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