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compounding of interest refers to the action wherein, the interest paid to us over a period of time would increase gradually.
Ex: Lets say you invest Rs. 10000/- at 10% per annum which is compounded every quarter.
So interest for first quarter: Rs. 250/-
Principal at the end of first quarter: 10,250/-
Interest for second quarter: Rs. 256.25/-
Principal at the end of second quarter: 10,506.25/-
the increase in interest in the second quarter is because, the interest paid during the first quarter is also considered for interest payment in the second quarter. So, even though the principal amount we invested remains the same the interest varies because of compounding of interest.
The shorter the compounding period, greater is the interest earned.
Simple interest is to charge interest on the principle amount.
compound interest is the interest calculated on the simple interest!
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Is the interest accrued on a student loan simple or compound interest?
its compound interest
Compound interest is interest paid on interest previously earned?
yes
What is the conclusion of compound interest?
The conclusion was when the interest was paid out.
Does the amount of interest earned each year increase decrease or stay the same in a simple interest account What about in a compound interest account?
Simple interest: stays the same. Compound interest: increases.
Does banks charge simple or compound interest on overdraft?
compound
