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21 C AFME Calculation of Interest and Annuities
What is simple interest and how is it calculated?
Simple interest is interest calculated only on the principal amount. The formula is SI = P × R × T / 100, where P is principal, R is rate per annum, and T is time in years.
What is the formula for simple interest when principal, rate, and time are known?
SI = (P × R × T) / 100
How does compound interest differ from simple interest?
Compound interest is calculated on the principal plus accumulated interest from previous periods, whereas simple interest is calculated only on the original principal. This causes compound interest to grow faster over time.
What happens to the principal in a compound interest calculation at the end of each period?
Interest is added to principal to form new principal
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