QuestionAugust 11, 2025

How does compound interest help you reach your financial goals? a.) It allows your money to earn interest on the original amount and the interest already earned. b.) It guarantees that your investments will always grow over time. c.) It protects your money from experiencing the effects of inflation. d.) It increases your income immediately.

How does compound interest help you reach your financial goals? a.) It allows your money to earn interest on the original amount and the interest already earned. b.) It guarantees that your investments will always grow over time. c.) It protects your money from experiencing the effects of inflation. d.) It increases your income immediately.
How does compound interest help you reach your financial goals? a.) It allows your money to earn interest on the original amount and the interest already earned. b.) It guarantees that your investments will always grow over time. c.) It protects your money from experiencing the effects of inflation. d.) It increases your income immediately.

Solution
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Answer

a.) It allows your money to earn interest on the original amount and the interest already earned. Explanation 1. Identify the Definition of Compound Interest Compound interest is the addition of interest to the principal sum, where interest is calculated on both the initial principal and the accumulated interest from previous periods. 2. Analyze Each Option a.) Correct. Compound interest allows your money to earn interest on both the original amount and the interest already earned. b.) Incorrect. While compound interest can help grow investments, it does not guarantee growth as it depends on various factors like rate and time. c.) Incorrect. Compound interest does not protect against inflation; it merely grows the investment. d.) Incorrect. Compound interest increases wealth over time, not immediately.

Explanation

1. Identify the Definition of Compound Interest<br /> Compound interest is the addition of interest to the principal sum, where interest is calculated on both the initial principal and the accumulated interest from previous periods.<br /><br />2. Analyze Each Option<br /> a.) Correct. Compound interest allows your money to earn interest on both the original amount and the interest already earned.<br /> b.) Incorrect. While compound interest can help grow investments, it does not guarantee growth as it depends on various factors like rate and time.<br /> c.) Incorrect. Compound interest does not protect against inflation; it merely grows the investment.<br /> d.) Incorrect. Compound interest increases wealth over time, not immediately.
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