Simple and Compound Interest

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What is Simple Interest?

Back

Simple Interest is the interest calculated only on the principal amount, or the original amount of money deposited or borrowed.

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What is the formula for calculating Simple Interest?

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The formula for Simple Interest is I = PRT, where I is the interest, P is the principal, R is the rate of interest per year, and T is the time in years.

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What does 'P' stand for in the formula I = PRT?

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'P' stands for Principal, which is the initial amount of money deposited or borrowed.

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What does 'R' represent in the formula I = PRT?

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'R' represents the Rate of interest, expressed as a decimal or percentage.

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What does 'T' represent in the formula I = PRT?

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'T' represents Time, which is the duration for which the money is borrowed or invested, measured in years.

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How do you convert months into years?

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To convert months into years, divide the number of months by 12.

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If you have $1000 at a simple interest rate of 5% for 3 years, how much interest will you earn?

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You will earn $150 in interest (I = PRT = 1000 * 0.05 * 3).

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What is Compound Interest?

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Compound Interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods.

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How does Compound Interest differ from Simple Interest?

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Unlike Simple Interest, Compound Interest is calculated on the total amount (principal + accumulated interest), leading to higher returns over time.

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What is the formula for Compound Interest?

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The formula for Compound Interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the number of years.