The difference between compund intrest and simple interest example questions
Answers
Answer:
Simple interest as the name suggests is simple in the calculation and to understand. Simple interest is the amount that the lender charges the borrower on only the principal loaned.
The formula to Calculate Simple Interest is:
Si Formula
Where SI is Simple Interest
P is Principal
R is the rate
And T is the time for which the loan is given
The amount owed at the end of the period is given by
A = SI + P or A = PRT/100 + P
Compound interest is the interest earned on the principal amount as well as the interest earned on the accrued interest. Compound interest depends on the frequency of compounding i.e. the interest can be compounded daily, monthly, quarterly, half yearly or annual etc.
The formula to calculate amount earned when the principal is compounded is given as:
Compound interest formula
Where A is the Amount,
P is the principal,
R is the rate of interest
T is the time for which the principal is owed
Thus, the Compound Interest is calculated = A – P = P (1 + r/100)T – P
Compound interest can be equal to more than the simple interest depending on the time and frequency of compounding.
Explanation: