simple interest

Examples of simple interest in the following topics:

• Multi-Period Investment

  • They can either accrue simple or compound interest.
  • The first concept of accruing (or earning) interest is called "simple interest. " Simple interest means that you earn interest only on the principal.
  • Simple interest is expressed through the formula in.
  • In simple interest, it is only how much the principal is that matters.
  • Compare compound interest to simple interest.

• Calculating Present Value

  • But first, you must determine whether the type of interest is simple or compound interest.
  • If the interest is simple interest, you plug the numbers into the simple interest formula.
  • Simple interest is pretty rare.
  • Simple interest is when interest is only paid on the amount you originally invested (the principal).
  • Distinguish between the formula used for calculating present value with simple interest and the formula used for present value with compound interest

• Calculating Future Value

  • But recall that there are two different formulas for the two different types of interest, simple interest and compound interest .
  • Unless the problem states otherwise, it is safe to make these assumptions - you will be told if there are payments during the 10 year period or if it is simple interest.
  • Simple interest is when interest is only paid on the amount you originally invested (the principal).
  • You don't earn interest on interest you previously earned.
  • Distinguish between calculating future value with simple interest and with compound interest

• Approaches to Calculating Future Value

  • Calculating FV is a matter of identifying PV, i (or r), and t (or n), and then plugging them into the compound or simple interest formula.
  • Is it simple or compounding interest?
  • This time, the interest is 5% per year and it is explicitly stated to be simple interest.
  • Simple interest is when interest is only paid on the amount you originally invested (the principal).
  • You don't earn interest on interest you previously earned.

• Interest Compounded Continuously

  • In simple interest, interest is accrued on the principal alone.
  • This is the exact amount that was in the account after the first year using simple interest.
  • That is, there are $25$ cents more in account in the second year using compound interest instead of simple interest.
  • Every year the interest earned will be higher than in the previous year, whereas in simple interest the amount each year is fixed.
  • The amount in the account is greater each year beginning with year two when using compound interest rather than simple interest.

• Number of Periods

  • The number of periods corresponds to the number of times the interest is accrued.
  • In the case of simple interest the number of periods, t, is multiplied by their interest rate.
  • This makes sense because if you earn $30 of interest in the first period, you also earn $30 of interest in the last period, so the total amount of interest earned is simple t x $30.
  • Simple interest is rarely used in comparison to compound interest .
  • In compound interest, the interest in one period is also paid on all interest accrued in previous periods.

• The Simple Pendulum

  • Exploring the simple pendulum a bit further, we can discover the conditions under which it performs simple harmonic motion, and we can derive an interesting expression for its period.
  • For angles less than about 15º, the restoring force is directly proportional to the displacement, and the simple pendulum is a simple harmonic oscillator.
  • For the simple pendulum:
  • or the period of a simple pendulum.
  • This result is interesting because of its simplicity.

• Comparing Interest Rates

  • Since interest compounds, the amount of interest actually accrued may be different than the nominal amount.
  • It provides an annual interest rate that accounts for compounded interest during the year.
  • The Fisher Equation is a simple way of determining the real interest rate, or the interest rate accrued after accounting for inflation.
  • The nominal interest rate is approximately the sum of the real interest rate and inflation.
  • Discuss the differences between effective interest rates, real interest rates, and cost of capital

• Macroeconomic Factors Influencing the Interest Rate

  • Taylor explained the rule of determining interest rates using three variables: inflation rate, GDP growth, and the real interest rate.
  • An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender in the market.
  • The interest rates are influenced by macroeconomic factors.
  • In other words, (πt - π*t)is inflation expectations that influence interest rates.
  • Taylor explained the rule in simple terms using three variables: inflation rate, GDP growth, and the equilibrium real interest rate.

• Single-Issue Interest Groups

  • Single-issue interest groups focus on advocacy around a single defining issue.
  • Interest groups use various forms of advocacy in order to influence public opinion and/or policy.
  • There are a wide variety of interest groups representing a variety of constituencies.
  • There are a growing number of single-issue interest groups in the US.
  • Some see this as proof that the NRA has too much influence in government, while others would simple describe it as evidence of the broad support for the organization.