Q. What is Simple Interest?
Ans. Simple interest is a percentage of money added to the debt of a borrower whenever he takes a loan. Since simple interest rates are compounded annually they are highly preferred by the borrowers. It is calculated on the principal amount on a yearly basis. The formula for simple interest is:
Simple Interest = ( PxRxT) / 100 ,
where is P= Principal Amount borrowed, R= Rate of interest, T= Period of time
Q. What is Compound Interest?
Ans. Compound interest is a percentage of money added to the debt of a borrower at any time. Since it is compounded at any time, it is highly preferred by the investors and is considered a financial burden for the borrowers due to high returns. It is calculated on the principal amount at a certain time along with the simple interest compounded for the previous year. The formula for compound interest is :
Compound Internet = P(1+R/100)^n ,
P= Principal Amount, R= Rate of interest, n = time period