Chapter 11, Problem 1CR

Interest calculated solely on the principal is known as _______ interest, whereas interest calculated on the principal and previously earned interest is known as _______ interest. (11-1)

To determine

To fill: The blank spaces in the statement, “Interest calculated solely on the principal is known as ____ interest, whereas interest calculated on the principal and previously earned interest is known as ____ interest.”

Answer to Problem 1CR

Solution:

Interest calculated solely on the principal is known as simple interest, whereas interest calculated on the principal and previously earned interest is known as compound interest.

Explanation of Solution

When a certain amount for investment is dependent on Simple Interest, this implies that, the formula to calculate the amount of interest $I=PRT$,

On the other hand, the amount of interest paid on principal and previously earned interest is Compound interest. And, it is calculated by the formula;

$\text{Compound interest}=\text{Principal}+\text{Simple interest}$

Therefore, the complete statement is “Interest calculated solely on the principal is known as simple interest, whereas interest calculated on the principal and previously earned interest is known as compound interest.”