simple + compound interest

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Last updated 10:34 AM on 9/21/26
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11 Terms

1
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how does simple interest work

you get paid/charged interest on the principal only

2
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how does compound interest work

you get paid/charged interest on the principal and any accumulated interest

3
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simple interest formula

.

<p>.</p>
4
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compound interest formula

top bit shows how we got there, bottom bit (yellow) is the formula

<p>top bit shows how we got there, bottom bit (yellow) is the formula</p>
5
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which is most commonly used

compound interest

6
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does compound interest always outperform simple interest

no, if you are investing for less than one time period then simple is better

<p>no, if you are investing for less than one time period then simple is better</p>
7
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show the formula for the present value of a cashflow CT under compound interest

uses the expression for compound interest from earlier

<p>uses the expression for compound interest from earlier</p>
8
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show the formula for the present value of a cashflow CT under simple interest

uses the expression for simple interest from earlier

<p>uses the expression for simple interest from earlier</p>
9
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the bigger the future cashflow (CT)…

…the bigger the present cashflow (C0)

10
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the bigger T is…

…the smaller the present cashflow

11
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the bigger r is…

…the smaller the present cashflow