Flores Company borrowed $10,000 at 10% interest for 5 years. Which statement is true?
A) Regardless of when the note is repaid, total interest over the loan period is the same.
B) Interest expense is the same regardless of the compounding periods.
C) The amount to be repaid is the same regardless of whether the principal is repaid $2,000 per year, or as a sum at the end of five years.
D) Interest is less if simple interest is used than if compound interest is used.

Question

Quizplus · Accepted Answer

Interest is less if simple interest is used than if compound interest is used because compound interest calculates interest on the accumulated interest over previous periods, while simple interest only calculates on the principal amount.

Flores Company Borrowed $10,000 at 10% Interest for 5 Years