contestada

Tom earned $120 in interest on his savings account last year. Tom has decided to leave the $120 in his account so that he can earn interest on the $120 this year. This process of earning interest on prior interest earnings is called:___________
A. discounting.
B. compounding.
C. duplicating.
D. multiplying.
E. indexing.

Respuesta :

Answer:

C. Compounding

Explanation:

Compound interest  is a system of calculating interest based on the initial principal invested plus the interest accumulated each year or period.  It is the addition of interest to principal   of a deposit.

In a nutshell, it entails reinvesting interest, so that the interest that will be earned in the next period will be based on the initial principal plus the interest that has been earned overtime.

Hence the process of earning interest on prior interest earning is called compounding

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