alleryStart learning →Interest income earned in later periods that is based on interest earned in prior periods is called:
ACompound interest
BSimple interest
CNominal interest
DDeferred interest
Answer & Solution
Correct answer: A. Compound interest
1. Interest can itself earn interest.
2. In the first year interest is earned on the original amount only.
3. Compound interest refers to interest income earned in subsequent periods.
4. It is based on interest income earned in prior periods.
_Source: OpenStax Principles of Finance (CC BY 4.0), Ch 7 'Time Value of Money I: Single Payment Value'_
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