Question

what type of interest is calculated based on a new balance at the end of every period instead of growing by a predetermined amount each period?

○ traditional interest

○ simple interest

○ compound interest

○ discounted interest

Explanation:

To determine the correct answer, we analyze each option:

• "Traditional interest" is not a standard term for this context.
• "Simple interest" is calculated based on the principal amount (a predetermined amount) each period, not the new balance.
• "Compound interest" is calculated using the new balance (principal + accumulated interest) at the end of each period, so it grows based on the updated balance.
• "Discounted interest" involves deducting interest upfront and is not related to growing based on new balances each period.

Answer:

C. compound interest