Interest calculated as principal × rate × time is known as?

Interest calculated as principal × rate × time is known as?

• A. Compound interest
• B. Simple interest
• C. Investing
• D. Bad debt

Answer: (B)

This is simple interest. When interest is calculated as principal times rate times time, the amount earned or owed depends only on the original principal, the rate, and the time period. The interest each period is the same (assuming the rate and time unit stay the same), because you’re not reinvesting previously earned interest. That linear growth is the hallmark of simple interest. In contrast, compound interest includes the interest earned in prior periods when calculating future interest, so the total grows faster over time. Investing is a general activity and doesn’t specify how interest is calculated. Bad debt refers to a debt that’s unlikely to be repaid and isn’t a method of calculating interest.

This is simple interest. When interest is calculated as principal times rate times time, the amount earned or owed depends only on the original principal, the rate, and the time period. The interest each period is the same (assuming the rate and time unit stay the same), because you’re not reinvesting previously earned interest. That linear growth is the hallmark of simple interest.

In contrast, compound interest includes the interest earned in prior periods when calculating future interest, so the total grows faster over time. Investing is a general activity and doesn’t specify how interest is calculated. Bad debt refers to a debt that’s unlikely to be repaid and isn’t a method of calculating interest.