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Plz answer!! I want to know the differences between simple and compound interest!!?

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  • Plz answer!! I want to know the differences between simple and compound interest!!?


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Answer #1 | 22/12 2013 22:07
As a formula, simple interest is A = P(1+r)t. A is the amount after a certain amount of time, P is the starting balance, r is the rate of interest (as a decimal) and t is time (usually in years). Compound interest is a bit more complicated. A = P(1+r/n)^nt A, P, r and t are like the simple interest formula, but n is the number of times the interest is compounded in the year. If it is compounded only once a year, n = 1. If quarterly, 4 and if monthly then 12. Hope this helps.
Answer #2 | 22/12 2013 22:26
The answers for formulas are correct. But, if they confuse you, think of it this way. If you borrow a dollar at 10% interest for a year, at the end of the year you would pay $1.00 plus 10 cents interest. $1.10. Same for both simple and compound. If you go two years it looks different. Simple Interest - 10% on the dollar you borrowed each year. So you owe $1.00 plus 10% plus 10% for the second year. $1.20 Compound interest - Now you pay 10% on the amount due on each year. The second year would be 10% interest on the $1.10 due from first year. So $1.10 + 11 cents for the more interest. The third year would be 10% on $1.21. and on. So the amount you owe gets bigger much faster. Or course, if you are paid compound interest then that gets bigger faster, too. Hope that helps.
Answer #3 | 23/12 2013 02:48
Simple interest is only on the principle amount but the Compound interest is on Principle amount as well as on the interest applied as well. C.I. is >=P.I

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