Final answer:
Compound interest is calculated by adding the accumulated interest to the principal and is correctly defined in the student's statement; therefore, the statement is true. Compound interest enables a deposit to grow at a rate that factors in the previously accumulated interest.
Step-by-step explanation:
Compound interest refers to the calculation of interest on the initial principal plus the interest that has been accumulated over previous periods. In contrast, simple interest is calculated only on the principal amount. The statement that interest earned on a given deposit that has become part of the principal at the end of a specified period is called compound interest is true.
To calculate compound interest, we use the formula: Future Value = Principal x (1 + interest rate)^time. The compound interest is then found by subtracting the Present Value (the initial principal) from the Future Value.
A checking account, conversely, is a type of bank account that typically offers easy access to funds and little to no interest, differentiating it from investment vehicles where compound interest is a common benefit.