Multiple Choice
To create a balanced budget, one must make sure to:
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1. Introduction to Accounting
Fundamental Accounting Equation
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Simple interest is paid only on the:
A
accumulated interest
B
original principal amount
C
total amount (principal plus interest)
D
future value of the investment
Verified step by step guidance1
Understand the concept of simple interest: Simple interest is calculated only on the original principal amount, not on accumulated interest or future value.
Identify the formula for simple interest: The formula is \( I = P \cdot r \cdot t \), where \( I \) is the interest, \( P \) is the principal amount, \( r \) is the annual interest rate, and \( t \) is the time in years.
Clarify the distinction between simple interest and compound interest: Unlike compound interest, simple interest does not involve reinvesting the interest earned; it is calculated solely on the principal.
Review the options provided in the problem: The correct answer is 'original principal amount' because simple interest is based only on the principal, not on accumulated interest, total amount, or future value.
Apply this understanding to similar problems: Always check whether the interest calculation involves compounding or remains fixed on the principal to determine if it is simple interest.
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