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Simple interest is computed on

  • A.the average balance over the whole term
  • B.the original principal only
  • C.the principal plus accumulated interest
  • D.the principal less any repayments made

Answer: B

Correct answer: the original principal only

\[ F = P(1 + in). \] Because the interest never itself earns interest, the balance grows linearly with time. Simple interest survives in short-term instruments and in some statutory calculations, but it is not how money actually accumulates when the interest is left invested.

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