What type of interest is calculated only on the principal amount?

The correct response is that simple interest is calculated solely on the principal amount, which is the initial amount of money invested or borrowed. This type of interest does not take into account any interest that has already been added to the principal; instead, it is a straightforward calculation based exclusively on the original sum.

In contrast, compound interest is calculated not only on the principal but also on any previously accrued interest, leading to interest on interest over time. Variable interest can change over the duration of a loan or investment, while fixed interest remains constant throughout the term. Understanding these differences is essential in finance as they impact the total amount of interest paid or earned over time.