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In the worked example, simple interest applies to which year?
AYear ten
BYear one
CYear two
DYear five
Answer & Solution
Correct answer: B. Year one
1. The two kinds of interest appear in different years of the example.
2. Compound interest is interest on prior interest.
3. Simple interest applies to year 1.
4. Compound interest, or interest on interest, applies to year 2.
_Source: OpenStax Principles of Finance (CC BY 4.0), Ch 7 'Time Value of Money I: Single Payment Value'_
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