Which describes the difference between simple and compound interest brainly?
Expert-Verified Answer
Simple interest is calculated on the principal, or original, amount of a loan. Compound interest is calculated on the principal amount and the accumulated interest of previous periods, and thus can be regarded as “interest on interest.”
What is the difference between how simple and compound interest are paid? Simple interest is paid on the principal only, compound interest is paid on both principal and interest.
Simple interest is computed on the principal amount or loan amount whereas compound interest is computed based on the principal amount as well as the interest accumulated for a certain period or previous period.
A simple interest is interest strictly on the money you deposited while a compound interest is interest on the money you deposited + the interest accumulated thus far.
With simple interest, you would add 5% of $100 - $5 - each year for 10 years, for a total of $50 worth of interest. You would end up owing $150 after 10 years. If you were paying 5% interest compounded annually, though, you would take 5% of the amount each year - including any interest that has already accumulated.
The difference between simple interest and compound interest is the way the interest accumulates. Simple interest accumulates only on the principal balance, while compound interest accrues to both the principal balance and the accumulated interest.
Simple interest is based on the principal amount of a loan or deposit. In contrast, compound interest is based on the principal amount and the interest that accumulates on it in every period.
Simple interest is an interest charge that borrowers pay lenders for a loan. It is calculated using the principal only and does not include compounding interest.
Final answer:
Simple interest is calculated based on the initial amount, while compound interest is calculated on both the initial amount and accumulated interest. Compound interest is more effective in generating higher returns over time.
What is $3000 at 8 for 5 years?
So, after 5 years, you will have $5580 in the account if you deposit $3000 and earn 8% interest compounded monthly.
Simple interest is interest paid only on the original investment whereas compound interest paid both on the original investment and on all interest that has been added to the original investment.
When it comes to investing, compound interest is better since it allows funds to grow at a faster rate than they would in an account with a simple interest rate.
| Formulas for Interests (Simple and Compound) | |
|---|---|
| SI Formula | S.I. = Principal × Rate × Time |
| CI Formula | C.I. = Principal (1 + Rate)Time − Principal |
While simple interest and compound interest differ in terms of their calculation methods and the impact on the total interest earned, they share commonalities in terms of their basis on the principal amount, the influence of time and interest rate, and their application in various financial transactions.
One extra payment can reduce total interest costs and reduce your repayment time. Say you have a student loan balance of $35,000 at 5% interest, on a 10-year repayment term. Making biweekly payments can shave off a year of repayment and save you $1,113 in interest.
A simple interest rate doesn't increase over time. Whether it's charged monthly, quarterly, or annually, the simple interest percentage stays the same for the duration of your loan or account contract.
The time value of money is a basic financial concept that holds that money in the present is worth more than the same sum of money to be received in the future. This is true because money that you have right now can be invested and earn a return, thus creating a larger amount of money in the future.
Simple Interest Examples
You want to know your total interest payment for the entire loan. To start, you'd multiply your principal by your annual interest rate, or $10,000 × 0.05 = $500. Then, you'd multiply this value by the number of years on the loan, or $500 × 5 = $2,500.
Simple Interest (S.I.) is the method of calculating the interest amount for a particular principal amount of money at some rate of interest. For example, when a person takes a loan of Rs. 5000, at a rate of 10 p.a. for two years, the person's interest for two years will be S.I. on the borrowed money.
What is an example of simple to compound?
When converting simple sentences with infinitive phrases into compound sentences, you will have to transform the infinitive phrase into a clause and combine it with the main clause in the sentence with a coordinating conjunction. Example 1: Joana has to work all night to complete the pending documents.
If you borrowed $1,000 and agreed to pay it back three years later at 20% annual interest, you would owe $600 interest plus the $1,000 principal you borrowed. If you had a $1,000 loan with interest that compounded 20% annually, you would owe 20% on the annual balance, which would increase every year.
The main difference between simple and compound interest is how the interest is calculated. Simple interest is calculated based only on the principal amount, while compound interest takes into account both the principal amount and any accumulated interest.
Future value is a value of an investment or asset on a specific date in the future. To put it another way, the future value is the amount of money a given investment will be worth after a certain period, assuming a specific rate of return (interest rate).
When you invest, your account earns compound interest. This means, not only will you earn money on the principal amount in your account, but you will also earn interest on the accrued interest you've already earned.
