Simple and Compound Interest

Simple and Compound Interest

Interest is the extra money that a bank gives you for saving or depositing your money with them. Similarly, when you borrow money, you pay interest.
With Simple interest, the interest is calculated on the same amount of money in each time period, and, therefore, the interest t earned in each time period is the same.
On the other hand, compound interest is calculated on the principal plus the interest for the previous period. The principal amount  increases with every time period, as the interest payable is added to the principal. This means interest is not only earned on the principal, but also on the interest of the previous time periods.
So we can say that the compound interest calculated is more than the simple interest on the same amount of money deposited.
When interest is compounded, the total amount is calculated using the formula, .

Interest is generally calculated on a yearly basis. Sometimes, it can be compounded more than once within a year. It can be compounded half yearly, which means twice a year, or quarterly, which means four times a year.
The period for which interest is calculated is called the conversion period. At the end of the conversion period, the interest is added to the principal to get the new principal.
The formula to calculate the new rate of interest with respect to the conversion period is
Time period=number of years
When interest is compounded half yearly, the interest rate will be half of the annual interest rate.
The formula to calculate the new time period with respect to the conversion period is
Time period=number of years
When interest is compounded half yearly, the time period will be doubled.
The formula for compound interest can also be used in finding the growth rate of population, rate of increase of bacteria, rate of increase of land rates, etc.
Time period=number of years
Time period=number of years