Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is the price paid for the use of borrowed money, or money earned by deposited funds. This article describes Simple Interest and Compound Interest concepts.
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Simple Interest
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Simple Interest is calculated only on the principal amount, or on that portion of the principal amount that remains unpaid. It can be calculated as:
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Simple Interest = Pnr/100
rnwhere P = Principal,
rnr = Rate of interest (per annum)
rnn = Number of years
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The sum of Principal and Simple Interest is called the Amount represented by A.
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Compound Interest
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Money is said to be lent at Compound Interest when at the end of a year or other fixed period the interest that has become due is not paid to the lender, but is added to the sum lent and the amount thus obtained becomes the principal for the next period. The process is repeated untill the amount for the last period has been found. The difference between the original principal and the final amount is called Compound Interest. Amount can be obtained by the formula:
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Amount = P [ 1 + r/100 ]n
rnCompound Interest can be calculated from the given formula.
rnSum of principal and compound interest is called the amount represented by A.
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