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.

💡 Why is B) the correct answer?

The correct answer to the question "Compound interest formula A = P(1 + r/n)^(nt) differs from simple interest because:" is Option B: Compound interest earns interest on previously accumulated interest.

The other options — A) They are the same, C) Simple interest is higher, D) Compound interest uses only principal — are incorrect for this DAT Exam Prep question. As explained above: Compound interest: interest earned is added to principal, then future interest is calculated on the new total. Exponential growth vs. linear.

📚 About This DAT Exam Prep Practice Question

This 2-level DAT Exam Prep question from the Quantitative Reasoning 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 DAT Exam Prep practice test or use flashcards for spaced repetition review.

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

✓ Correct Answer: Option B

📚 About This DAT Exam Prep Practice Question

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