Recognizing interest on interest
A fictional account retains its interest each year and applies the same positive annual rate to the entire new balance the next year. With no deposits, withdrawals, or fees, why does the dollar interest increase over time?
A
The account must be receiving hidden additional deposits.
B
A constant rate always produces the same dollar interest regardless of balance.
C
Previously earned interest becomes part of the balance that earns additional interest.
D
The bank must be increasing the annual percentage rate every year.
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