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Compound interest works like this.
Take a principle (The amount of money you deposit) of $10,000.
Lets say that the interest rate is 8% and that it compounds anually.
At the end of one year you would have $10,800.
With simple interest, at the end of two years, you would have $11,600 because you only earn interst on the principle.
After three years you would have $12,400.
However, with compound interest, you will earn interest on not just the principle, but the compounded interest as well.
Therefore, with compound interest, at the end of two years, you would have 11,664.
After three years it would be $12,597.12 and so on.
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What are the major differences between compound interest loan and simple interest loan?
With compound interest, the interest due for any period attracts interest for all subsequent periods. As a result, compound interest, for the same rate, is greater.With compound interest, the interest due for any period attracts interest for all subsequent periods. As a result, compound interest, for the same rate, is greater.With compound interest, the interest due for any period attracts interest for all subsequent periods. As a result, compound interest, for the same rate, is greater.With compound interest, the interest due for any period attracts interest for all subsequent periods. As a result, compound interest, for the same rate, is greater.
How do you know whether a maths question is asking you to work out compound or simple interest?
For the second (and subsequent) periods, if the interest is to be calculated for the original sum PLUS the interest earned so far then it is compound interest. If only the original amount earns interest in all periods then it is simple interest.
What are some of the uses of compound interest in business?
compound interest increases interest more than simple interest
Interest earned on interest is known as?
Compound Interest
Is the annual interest rate the same as 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.Usually no. Most institutions charge (and pay) compound interest, NOT simple interest.
