Simple & Compound Interest
Important Terms
Principal: The amount of money borrowed or lent for a certain period.
Interest: Extra amount of money paid while returning the principal amount to the lender.
Simple Interest: In Simple Interest, the interest is applied to the principal amount alone.
Compound Interest: In Compound Interest, interest is applied on the principal plus interest earned quarterly, half-annually or annually.
Simple Interest Formulae
Simple Interest = (P x R x T) / 100
P: Principal amount
R: Interest Rate% per Annum (yearly)
T: Time in years
Compound Interest Formulae
Compound Interest is similar to Simple Interest. The difference is that in Compound Interest, the Interest is added to principal amount after every term (quarterly, half-annually or annually).
Compound Interest, if compounded annually:
Compound Interest = P (1 + R/100 )n
Compound Interest, if compounded half-annually:
Compound Interest = P (1 + R/100 )2n
Compound Interest, if compounded quarterly:
Compound Interest = P (1 + R/100 )4n