Final answer:
The statement is false. Interest can be computed using either the simple interest method or the compound interest method, which takes the accumulated interest into account when computing future values.
Step-by-step explanation:
The statement that the conventional approach for computing interest is the compound interest approach is false. There are in fact two principal methods for calculating interest: simple interest and compound interest. Simple interest is calculated only on the principal amount, whereas compound interest is calculated on the principal amount plus the accumulated interest over time.
To compute compound interest, we follow the formula:
- Future Value = Principal x (1 + interest rate)time
- Compound interest = Future Value - Present Value
For example, if you want to calculate the compound interest over a three-year period, you would apply this formula by plugging in the respective amounts for the principal, interest rate, and time.