Chapter II, Problem 1RQ

What is meant by the term compound interest?

To determine

Define the term “Compound Interest”.

Explanation of Solution

Interest: Interest is the cost of borrowing money, in other words Interest is the amount charged on the principal value of the money borrowed for the privilege of borrowing money. Interest is to be paid by the borrower and to be received by the lender.

Compound interest: The amount of interest received or earned for multiple-interest time periods, on the sum of principal plus interest earned in that period, for one term is referred to as compound interest.