Compounding — Social Studies definition
Applying a rate to a balance including earlier accumulated amounts under stated rules.
Where it is taught
- Credit, Interest, Loan Terms & Borrowing Costs — Household Finance & Major Decisions, Government, Civic Participation & Economics, Grade 12
Questions using compounding
Problem 1
Why does compounding differ from adding the same interest amount each period?
Answer and explanation
The rate applies to a changing balance including prior accumulated interest under the model. The second month adds $1.01, not $1, to the supplied $101 balance. Payments and contract rules can change the actual process.