Final answer:
The rate described is called the annual percentage rate (APR), which differs from compound interest that includes interest on accumulated interest, causing higher growth over time.
Step-by-step explanation:
The interest rate charged per period multiplied by the number of periods per year is called the annual percentage rate (APR). This rate does not take into account the effects of compounding, which can increase the amount owed or earned due to interest on previous interest. In contrast, compound interest is an interest rate calculation on the principal plus the accumulated interest. Unlike simple interest, which is only calculated on the principal amount, compound interest grows faster because it is calculated on the accumulated interest as well as the principal.
To calculate compound interest, you would use the formula:
Future Value = Principal x (1 + interest rate)^time
Compound interest is then the difference between the future value and the present value of the principal.