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Compound interest is simply simple interest except the amount of interest you owe is always added into the amount of money you borrowed before you calculate.

Lets give an example.

You borrowed a million from the bank at Year 2000 with interest rates of 5%.

The formula for simple interest is PIN/100, where P is Principle (amount owed), I is interest rate (in percentage), N is the number of years.

Year 2000: 1,000,000

Year 2001: 1,000,000 * 5 * 1 / 100 = 50,000 (this is the interest)

Year 2002: (1,000,000 + 50,000) * 5 * 1 / 100 = 52,500

By the end of 2002, you would owe the bank 1,102,500(1,000,000 + 50,000 + 52,500)

The formula for compound interest is P * (1 + I/100)N where P,I and N still refers to the same thing.

Year 2000: 1,000,000

Year 2001: 1,000,000 * (1+5/100)1 = 1,050,000

Year 2002: 1,050,000 * (1+5/100)1 = 1,000,000 * (1+5/100)2 = 1,102,500

Q: How can compound interest be derived from simple interest?

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Usually no. Most institutions charge (and pay) compound interest, NOT simple interest.Usually no. Most institutions charge (and pay) compound interest, NOT simple interest.Usually no. Most institutions charge (and pay) compound interest, NOT simple interest.Usually no. Most institutions charge (and pay) compound interest, NOT simple interest.

compound interest increases interest more than simple interest

It can be either.

Simple interest is interest that is calculated only on the amount of unpaid principal on a loan. Such interest is not added to the value of the loan but is tracked separately. Compound interest is interest that is calculated on the total of unpaid principal and accumulated interest on a loan. The difference is in simple interest there is no interest charged on accumulated interest while in compound interest there is interest charged on accumulated interest.

simple interst is when you earn interest from your principal but compound interest is when you earn interest from your principal as well as from your previous interest

Related questions

There is simple interest and there is compound interest but this question is the first that I have heard of a simple compound interest.

Usually no. Most institutions charge (and pay) compound interest, NOT simple interest.Usually no. Most institutions charge (and pay) compound interest, NOT simple interest.Usually no. Most institutions charge (and pay) compound interest, NOT simple interest.Usually no. Most institutions charge (and pay) compound interest, NOT simple interest.

its compound interest

Compound interest.

simple interest and compound interest

Simple interest is based on the original principle of a loan. Simple interest is generally used on short-term loans. Compound interest is interest added to the principal of a deposit or loan so that the added interest also earns interest from then on.

compound interest increases interest more than simple interest

A simple interest calculation can provide a rough estimate of what the compound interest will be if the interest is calculated periodically and added to the principal. Compound interest considers interest on both the initial principal and the accumulated interest, resulting in higher returns compared to simple interest over time.

Simple interest: stays the same. Compound interest: increases.

Simple interest: stays the same. Compound interest: increases.

The interest for 1 year is 37.00, whether it is simple or compound interest.

compound