2. In simple terms, compound interest is
interest you earn on intererest.With a
savings account that earns compound
interest, you earn interest on the initial
principal plus on the interest that
accumulates overtime.
3. Generally, simple interest paid or received
over a certain period is a fixed percentage of
the principal amount that was borrowed or
lent.
Compound interest accrues and is added to
the accumulated interest of previous periods,
so borrowers must pay interest on interest as
well as principal.
4.
5. Types of Compound Interest
There are generally two types of compound interest used.
Periodic Compounding - Under this method, the interest rate is applied at Types of Compound Interest
There are generally two types of compound interest used.
Periodic Compounding – Under this method, the interest rate is applied at intervals and generated. This interest is added to the principal. Periods here would mean annually, bi-annually,
monthly, or weekly.
Continuous Compounding – This method uses a natural log-based formula and calculates interest at the smallest possible interval. This interest is added back to the principal. This can be
equalled to the constant rate of growth for all natural growth. This figure was born out of physics. It uses Euler’s number which is a famous irrational number which is known to more than 1
trillion digits of accuracy. Euler’s number is denominated by the letter “E”. and generated. This interest is added to the principal. Periods here would mean annually, bi-annually, monthly, or
weekly.
Continuous Compounding - This method uses a natural log-based formula and calculates interest at the smallest possible interval. This interest is added back to the principal. This can be
equalled to the constant rate of growth for all natural growth. This figure was born out of physics. It uses Euler's number which is a famous irrational number which is known to more than 1
trillion digits of accuracy. Euler's number is denominated by the letter "E".
