L | INTEREST

• INTEREST

  • amount paid back to the lender along with the original amount borrowed
  • monetary charge for the privilege of borrowing money
  • cost of money which doesn’t belong to you, but have used it
• 2 TYPES OF INTEREST

  1. SIMPLE INTEREST
  2. COMPOUND INTEREST
• SIMPLE INTEREST

  • interest based on the principal amount of a loan or deposit
  • Dependent on the principal, rate of interest, and the time period
• COMPOUND INTEREST

  • interest based on the principal amount and the interest that accumulates on it in every period
  • Dependent on the principal, rate of interest, the time period , and the compounding terms
• 2 TYPES OF INTEREST

  A) SIMPLE INTEREST

  B) COMPOUND INTEREST

  
• INTEREST

  • extra amount paid
• RATE

  • expressed as percent per year
• TIME

  • period of maturity
• PRINCIPAL

  • original amount borrowed or invested
• COMPUTING SIMPLE INTEREST

  $I=$$\Pr t$
• COMPOUND INTEREST

  • “the interest you earn on interest”
• COMPUTING FUTURE VALUE (COMPOUND):

  • P = PRINCIPAL
  • r = RATE
  • t = TIME
  • c = COMPOUNDING TERM
• C = COMPOUNDING TERM

  • the number of times in a year when the principal earns interest
• • ANNUALLY = 1
  • SEMI ANNUALLY = 2
  • QUARTERLY = 4
  • MONTHLY = 12
  • DAILY = 365