Question

Difference between the compound interest of half year & simple interest of one year

Answer 1

Simple Interest:

As the name implies, the calculation of simple interest is pretty simple. Multiply the principal amount with the number of years and the rate of interest.

Simple Interest Formula:
Simple Interest = Principal * Time * Rate of interest / 100

Abbreviated as SI = PTR/100

Compound Interest:

In compound interest, the principal amount with interest after the first unit of time becomes the principal for the next unit.

Say, when compounded annually for 2 years, the principal amount with interest accrued at the end of first year becomes the principal for the second year.

Compound Interest Formula:
Amount = Principal * [1 + Rate of Interest/100]Time period

Abbreviated as Amount = P * [1 + R/100]t, when compounded annually.

Sometimes, the interest is also calculated half-yearly or quarterly.

When compounded semi-annually or half-yearly,

Amount = P[1 + (R/2)/100]2t

When compounded quarterly,

Amount = P[1 + (R/4)/100]4t

Present worth of Principal P due t years hence is given by:

P/[1+ R/100]t