Question

1. how can compounding interest grow your investments?

○ by reducing the risk of investing
○ by reinvesting your earnings to gain additional returns
○ by increasing the impact of inflation over time
○ by investing in different stocks to diversify your portfolio

1. what statement accurately describes the historical trends of the stock market since its inception?

○ the value has increased constantly and slowly since the stock market opened
○ the value has gone up and down a lot, but overall has increased over time
○ the value increased a lot in its early days, but has since stayed relatively constant
○ the value has gone up and down a lot, but overall has decreased over time

Explanation:

1. For the first question, compounding works by reinvesting the earnings (like interest or dividends) from an investment, so those earnings generate their own additional returns over time. The other options are incorrect: compounding does not reduce risk, it does not increase inflation's negative impact, and diversification is a separate strategy.
2. For the second question, historical data shows that the stock market experiences short-term volatility (ups and downs) but has a long-term upward trend, with overall growth over its history. The other options do not match this historical pattern.

Answer:

1. By reinvesting your earnings to gain additional returns
2. The value has gone up and down a lot, but overall has increased over time