DECA Personal Financial Literacy (PFL) Practice Exam 2025 - Free PFL Practice Questions and Study Guide

When interest is computed only once on the principal amount, it is referred to as simple interest. Simple interest reflects the basic calculation where the interest is determined solely based on the original principal amount and does not take into account any previously accrued interest over time. This means that each interest period results in the same amount of interest being added, making it straightforward to calculate and understand.

In contrast, compound interest involves the calculation of interest on both the initial principal and the accumulated interest from previous periods, leading to a growth that can increase significantly over time. Annual interest can refer to various methods of interest calculation, including both simple and compound interest, depending on the context. Tax interest typically refers to interest that may be applied for tax purposes, which does not directly relate to the basic accumulation of interest on a principal amount.