Which of the following statements is true regarding simple and compound interest

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Question: Which of the following statements is true regarding simple and compound interest?

Options:

Correct Answer: Compound interest is always greater than simple interest.

Solution:

Compound interest will always be greater than simple interest for the same principal, rate, and time, except for the case of zero interest.

Which of the following statements is true regarding simple and compound interest?

Which of the following statements is true regarding simple and compound interest?

Step 1: Understand what simple interest is. Simple interest is calculated only on the original principal amount.
Step 2: Understand what compound interest is. Compound interest is calculated on the principal amount and also on the interest that has been added to it over time.
Step 3: Recognize that with compound interest, the amount of interest earned increases over time because it is calculated on a growing amount (the principal plus any previously earned interest).
Step 4: Compare the two types of interest. For the same principal, rate, and time, compound interest will accumulate more than simple interest because it earns interest on interest.
Step 5: Note the exception. If the interest rate is zero, both simple and compound interest will be the same (zero).

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