INTEREST AND INVESTMENT

Interest

The cost of borrowing money or the return on investment.

Simple Interest

Interest calculated only on the principal amount.

Compound Interest

Interest earned on both the principal and previously earned interest.

Compounding Interest

The process of applying compound interest over multiple periods.

Ordinary Interest

Interest calculated based on a 360-day year.

Nominal Rate of Interest

Stated interest rate, not accounting for compounding.

Equivalent Nominal Rate

Converts interest rate from one compounding frequency to another but keeps the nominal annual rate consistent.

Effective Rate of Interest

Actual interest rate accounting for compounding.

Effective Interest Rate for Continuous Compounding

Interest rate under the assumption of continuous compounding.

Continuous Compounding

Compounding that happens infinitely frequently in a given period.

Return of Investment (ROI)

Percentage of gain or loss relative to the investment.

Rate of Return

Profit or loss on an investment as a percentage of its cost.

Investment Cost

The initial cost of purchasing an asset or starting a project.

Working Capital

The short-term funds required to maintain daily operations.

What is Simple Interest?

Interest calculated only on the principal amount.

What is Compound Interest?

Interest earned on both the principal and previously earned interest.