Simple Interest vs. Compound Interest for Investment

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Simple Interest

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Compound Interest

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Simple Interest Results

Compound Interest Results

"Earnings obtained when you invest your money using compound interest vs. simple interest if both have the same terms for comparison."

Breakdown
# Date Principal Interest Cumulative Interest End Balance
Breakdown
# Date Principal Interest Cumulative Interest End Balance

Explanation

Principal - Initial capital invested: the foundation of your financial portfolio. Interest Rate - Annual percentage rate that represents the return on your investment. Duration - The time period of your investment, usually measured in years. ROI - Return on Investment, the return or benefit of your investment in relation to its cost.

Formula

SIMPLE INTEREST
Simple interest is calculated by multiplying the principal, interest rate, and time period. His formula is as follows:
simple interest = P * r * t
  • P represents the principal.
  • R denotes the annual interest rate.
  • T indicates the duration in years.
    • COMPOUND INTEREST
    The essential factors for calculating compound interest are the principal, the interest rate, and the frequency of capitalization in a given duration. The calculation formula is:
    Compound Interest = P * (1+r/n) nt - P
  • P It is the principal or the original deposit into the bank account.
  • r is the annual interest rate.
  • t is the number of years.
  • n is the number of times interest is compounded in a year.
    • Simple and compound difference
    In the area of simple interest, only the principal generates profits, regardless of the duration of the investment. By contrast, compound interest not only accrues on principal, but also accrues on the interest of previous periods. It is the prevalent method used in various financial transactions such as credit cards, savings and checking accounts, and mortgage loans.

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