Which describes the difference between simple and compound interest? A> Simple interest is paid on small, short-term loans, while compound interest is paid on large, long-term loans.
B> Simple interest is paid on the principal, while compound interest is paid on the principal and interest accrued.
C> Simple interest is paid on large, long-term loans, while compound interest is paid on small, short-term loans.
D> Simple interest is paid on the principal and interest accrued, while compound interest is paid only on the principal.

B> Simple interest is paid on the principal, while compound interest is paid on the principal and interest accrued.

Explanation:

Simple interests is the interest earned on the principal amount only. The amount of interest does not change throughout the life of the investment or loan.

In compound interests, the interest earned in a particular season is added to the principal amount. Adding together interest and the principal amount is referred to as compounding. The effect is that the principal amount increases every year. An increase in principal amount results in higher interest every subsequent year.

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