Christina invested $3,000 five years ago and earns 2 % interest on her investment. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as which one of the following?
A. Simplifying.
B. Compounding.
C. Aggregation.
D. Accumulation.
E. Discounting.

COMPOUNDING is a situation where the earnings on assets, i.e interest, are reinvested along with the original principal (amount) to make even more earnings.

More earnings will accumulate simply because the earnings are now being made on both the original amount as well as the reinvested amount which is simply what Christina is doing.

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tutordamola tutordamola · Answer 2 · 2020-03-08T20:23:21+01:00

Answer:

The answer is B

Explanation:

Compounding is a way increasing the value of an asset by adding interests earned on the principal loan or deposits. It adds interest on interest. The interest that are being reinvested accumulates over time.

We call this type of transaction compound interest. Compound interest allows investors to earn a very high returns over a period of time

So Christiana is practicing compounding by reinvesting her interest yearly on the $3,000 principal