I. Multiple Choice Questions 1. Interest earned on the reinvestment of previous interest payments is called a. free b. annual interest. c. simple d. interest on e. compound 2. Interest earned on both the initial principal and the interest reinvested from prior periods is called interest. a. free b.annual c. simple d. interest on e. compound 3. Interest earned only on the original principal amount invested is called a. free b. annual c. simple d. interest on e. compound interest. 4. As the discount rate increases, the present value of $2,000 to be received four years from now: a. remains constant. b. also increases. c. decreases. d. becomes negative. e.will vary but the direction of the change is unknown