Which describes the difference between simple and compound interest?
Simple interest is paid on small, short-term loans, while compound interest is paid on large, long-term loans.
Simple interest is paid on the principal, while compound interest is paid on the principal and interest accrued.
Simple interest is paid on large, long-term loans, while compound interest is paid on small, short-term loans.
Simple interest is paid on the principal and interest accrued, while compound interest is paid only on the principal.
The correct answer is: Simple interest is paid on the principal, while compound interest is paid on the principal and interest accrued.
Explanation: Simple interest is calculated only on the original amount of money (the principal) over the duration of the loan or investment. In contrast, compound interest is calculated on the principal plus any interest that has previously been added—meaning that interest can earn interest, leading to a larger total amount over time. This difference can significantly impact the total amount paid or earned over time.