Fundamentals of Financial Mathematics

Interest

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What is Interest (or "simple interest") 

It is the amount of money that is paid when borrowing another person's money. 

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What is the formula for simple interest? 

I = P x R x T 

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wherein I = Interest, P = Principal,  R = Rate,  T = Time.

What is an interest rate? 

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Interest rate is the amount that charged by lenders to borrowers. It is calculated at a fixed or variable rate for a specific time period.  

What is compound interest? 

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You may think of compound interest a the interest one earns on interest. It i the result one earns by reinvesting one's interest. 

What is the formula for compound interest?

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where P stands for the initial principal balance,  r is the interest rate,  n is the number of times interest is compounded per time period and  t is the number of time periods 

P (1 + r/n)^(nt)

"Money makes money. And the money  that money makes, makes money."

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-Benjamin Franklin 

Thank you

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