WORK IT OUT

Simple and Compound Interest
Simple interest is an interest rate calculation only on the principal amount.
426 17 • Financial Markets

Step 1. Learn the formula for simple interest:

Step 2. Practice using the simple interest formula.

Example 1: $100 Deposit at a simple interest rate of 5% held for one year is:

Simple interest in this example is $5.

Example 2: $100 Deposit at a simple interest rate of 5% held for three years is:

Simple interest in this example is $15.

Step 3. Calculate the total future amount using this formula:

Step 4. Put the two simple interest formulas together.

Step 5. Apply the simple interest formula to our three year example.

Compound interest is an interest rate calculation on the principal plus the accumulated interest.

Step 6. To find the compound interest, we determine the difference between the future value and the present

value of the principal. This is accomplished as follows:
{"file_size_mb": 26.99, "producer": "Prince 14.2 (www.princexml.com)", "creator": "PDFMiner", "source": "downloads\\business\\economics\\Microeconomics3e.pdf", "moddate": "2022-12-07T14:23:05-06:00", "upload_timestamp": "2026-02-07T15:37:44.339247", "file_hash": "830b81f41611ac67a490444dbb5d6aed292224606965b06965b914443c93331a", "file_name": "Microeconomics3e.pdf", "batch_upload": true, "file_type": ".pdf", "total_pages": 597, "uploaded_via": "batch_uploader", "title": "Principles of Microeconomics 3e", "creationdate": "2022-12-07T14:15:44-06:00", "source_file": "downloads\\business\\economics\\Microeconomics3e.pdf"}