Final answer:
True. An account that earns compound interest will grow more quickly than an otherwise identical account that earns simple interest. Compound interest is calculated based on not only the principal amount but also the interest that has already been earned.
Step-by-step explanation:
True. An account that earns compound interest will grow more quickly than an otherwise identical account that earns simple interest. Compound interest is calculated based on not only the principal amount but also the interest that has already been earned. This means that the interest compounds over time, leading to exponential growth.
For example, let's say you have two accounts with $1,000 each. Account A earns simple interest at a rate of 5%, while account B earns compound interest at the same rate. After one year, account A will have earned $50 in interest, while account B will have earned $51.25, taking into account the compounding effect. As time goes on, the difference between the two accounts becomes more significant.
Therefore, compound interest is a powerful tool for growing wealth over time, and it is important to consider the effects of compounding when making financial decisions.