The difference between simple interest and compound
Attachments:
Answers
Answered by
1
Simple interest
Simple interest is well, simple. Each year, the interest is calculated as a percentage of the principal, as follows:
So if you borrow $1,000 at 7% simple interest for five years, you'll owe $350 in interest.
Compound interest
In the real world, simple interest is rarely used. When you deposit money into an interest-bearing account, or take out a line of credit, the interest that accumulates is added to the principal, and the next interest calculation is done on both the principal and the interest.
Simple interest is well, simple. Each year, the interest is calculated as a percentage of the principal, as follows:
So if you borrow $1,000 at 7% simple interest for five years, you'll owe $350 in interest.
Compound interest
In the real world, simple interest is rarely used. When you deposit money into an interest-bearing account, or take out a line of credit, the interest that accumulates is added to the principal, and the next interest calculation is done on both the principal and the interest.
Similar questions