True or false: how compounding builds

Exercise and reference answers

Questions

1. Statement is true

   Yes

   Statement

   The base for compound interest grows every year.

2. Statement is true

   Yes

   Statement

   The gap over simple interest widens with time.

3. Statement is true

   Yes

   Statement

   Compound and simple interest agree in year one.

4. Statement is true

   No

   Statement

   Compound interest is smaller than simple interest in year three.

5. Statement is true

   Yes

   Statement

   Each year's interest joins the base for the next year.

Explanation