Question

Which option correctly defines principal?

a. a payment made as a penalty
b. a payment made in exchange for a good or service
c. the initial rate at which interest will be calculated for a loan
d. the initial balance of an account or loan

Answer 1

The correct definition of principal is the initial balance of an account or loan. Therefore, the correct option is D

Step-by-step explanation:

The correct definition of principal is option d. the initial balance of an account or loan. In the context of finance, principal refers to the original amount of money borrowed or invested, before any interest or profit is added. For example, if you borrow $100 from a bank, the principal is $100, and any interest you have to pay on top of that is calculated based on this principal amount.