If you were looking to invest money and you could get simple interest or compound interest and both investments had the same risk, which would you chose?
In simple interest the interest is calculated as amount of investment multiplied by interest rate. This mean the interest is paid only on the investment amount.
In compound interest the interest is calculated on both principal and interest earned. This means the amount of interest earned is added to value of investment to calculate the interest amount. It pays interest on interest.
The value of investment at end would be higher under compound interest rather than simple interest. If both the investment has same risk then it would be preferable to chose investment with compound interest to earn higher return on investment.
Thus, investment paying compound interest would be preferred.
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