Respuesta :

Assuming that the answer choices I am thinking of are correct, the right answer is D- Compound interest pays interest on the principal and the interest earned in each period.  Hope this helps.

Both types of interest consist of a percentage that will be added to the loan amount over time. The difference is that simple interest applies to each period under the amount but not to the cumulative total. In contrast, compound interest yields under the amount and yield of the previous month, ie interest is applied under the previous total (amount + interest). Therefore, for those who lend the value, compound interest is more advantageous.

For example, consider a $ 100 loan applied at a rate of 5% for 2 months.

Simple Interest:

Month 1: 100 * 0.05 = $ 5

Month 2: 100 * 0.05 = $ 5

Loan Total: $ 100 + $ 5 + $ 5 = $ 110

Compound Interest:

Month 1: 100 * 0.05 = $ 5

Month 2: 105 * 0.05 = $ 5.25

Total Loan: $ 100 + $ 5 + $ 5.25 = $ 110.25

Therefore, compound interest is better than simple interest because it will yield more over time.