simple and compound interest ni almommy

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9 Terms

1
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Principal

The amount of money borrowed by the borrower or lent by the lender; it also represents the amount still owed on a loan. Principal is usually denoted by the letter P.

2
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Interest rate

The rate at which interest is calculated, usually a percentage of the principal. It is usually denoted by the letter r.

3
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Time

The term or life of the loan, specifying how long the debt must be paid by the borrower or how long until a particular amount of money is received by the lender. Time is usually denoted by the letter t.

4
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Simple Interest formula

I = Prt

5
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What does the concept of the time value of money consider?

The opportunity cost of holding money.

6
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What happens if you just keep cash in your wallet?

It does not grow, unlike when invested.

7
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Simple Interest

is interest calculated on the original principal only. Here, simple interest is set as a percentage of the principal, and is multiplied by the amount of time

8
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Compound Interest

Interest that is earned every year is incorporated into the principal amount and itself earns interest at the same rate.

9
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Compound Interest Formula

A1 = P(1+rt)

A2 = A1(1+rt)

And so on


OR


A = P (1+ r/m)mt