THE INTERESTING FACE-OFF:

SIMPLE VS. COMPOUND

Interest is basically a percentage of some amount of money.
Interest the amount of money you pay someone for the use of their money (such
is either: as for a loan or credit card)

the amount that you're paid for the use of your money (such as with a
savings account at a bank)

The Two Basic Types Of Interest

1. SIMPLE INTEREST
2. COMPOUND INTEREST

SIMPLE INTEREST
 This type of interest is
computed on the principal –
the amount borrowed – for the
entire length of time of the
COMPOUND INTEREST
transaction.
The simple interest formula:  This interest builds on itself.
 Money earned in interest for
Interest = Prt part of the time period is
where: reinvested and used in the
P is the principal (the amount of money computation of interest for the
involved in the transaction); rest of the time period.
r is the rate of interest (written as a decimal
number); and The compound interest formula:
t is the amount of time (usually in years, if r is
the yearly rate). 𝒓 𝒕
𝑨 = 𝑷 (𝟏 + )
𝒏
There’s a better way! Here’s a formula that allows where:
you to find the total amount all in one computation: A is the total amount of money
accumulated (principal plus interest);
𝑨 = 𝑷(𝟏 + 𝒓𝒕) P is the principal (the amount
invested);
where:
r is the rate of interest (written as a
A is the total amount obtained from adding
decimal number);
the principal to the interest;
n is the number of times each year
P is the principal;
that the compounding occurs; and
r is the annual rate written as a decimal; and
t is the amount of time (usually in
t is the amount of time (usually in years, if r is
years, if r is the yearly rate).
the yearly rate).