GUIDE深度 · Deep dive
Simple and Compound Interest
Simple interest pays only on principal: I=Prt; compound interest adds interest to principal: A=P(1+r)^t. The gap grows with time and rate.
Formulas
Simple: I=Prt; total=P+I.
Compound: A=P(1+r)^t.
Use r as a decimal, e.g. 5%=0.05.
Comparison
1000 at 5% for 2 years: simple 100; compound 102.5.
Compound is closer to real investing.
Always write the time unit next to the rate, then convert both to the same period before substituting.
FAQ
Is compound always higher?
Usually with positive rates and more than one period.
Monthly compounding?
Divide r by 12 and multiply t by 12.