Lesson 4-2: Future Value and Present Value Concepts
Attempt: 5
Simple Interest
Simple interest is one calculation method to determine the charge for borrowing money. As discussed earlier lenders make money from interest, while borrowers pay interest.
The simple interest calculation strictly takes the money borrowed (the principal) and multiplies it by the rate and time:
Simple Interest = Principal x Rate x Time
Simple interest does not “compound”. In other words, interest will always be calculated off of the Principal balance. When interest is compounded, interest is calculated by taking the sum of the loan balance and the interest charged and not yet paid:
Compound Interest = (Principal + Interest charged) x Rate x Time
Learn more about simple interest at:
Investopedia's Understanding Simple Interest
