need business and finance help for better understanding Simple and Compound Interest.

timer Asked: Nov 20th, 2015
account_balance_wallet $5

Question Description

The interest generated on that money is the amount of simple interest earned. If one were to leave that money in the bank for two years, then they would receive interest on the principal and on the simple interest. This is where your interest begins to compound. The process of accumulating interest on an investment over multiple time periods is known as compounding. As a final point, interest earned on the initial principal and reinvested interest during prior periods is compound interest. 

Tutor Answer

Doctor S
School: Boston College

Thank you for the opportunity to help you with your question!

Hello Missash,

The difference between simple and compounded interest is that in simple interest, we work with the principal ony in calculating the total interest using the formula 


where p is the principal, and r is the rate and t is time

for compound interest, the interest earned above ill also earn interest upon reinvestment such that the total interest will include the interest on the principal and interst on the principals interest. thuis we use

Interest= P(1+r/100) ^ n 

where n is the number of periods of reinvestment of principal and gained interests.

Please let me know if you need any clarification. I'm always happy to answer your questions.

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awesome work thanks

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