Question

(ECONOMICS)

Question 2 of 10
What is one strategy that can help a person avoid spending too much money
on interest when borrowing money?
O A. Choosing a credit card with a high minimum monthly payment
O B. Choosing a loan with a compound rather than simple interest rate
O C. Choosing a credit card with a low minimum monthly payment
O D. Choosing a loan with a simple rather than compound interest rate

Answer 1

D. Choosing a loan with a simple rather than compound interest rate

Step-by-step explanation:

Simple interest is based only on the amount of principal amount of the interest. Compound interest on the other hand, is based on the principal amount Added with interest accumulated throughout the period of the loan. Because of this ,Compound interest usually will create higher amount of interest payment compared to simple interest.

Example:

A $100 loan with 1% / month interest rate

Simple interest :

1st month : 1% x $ 100 = $1

2nd month : 1% x $100 = $1

Compound interest

1st month : 1% x $100 = $1

2nd month : 1% x ($100 + $1) = $1.01