The money lent or borrowed is called the principal.
Interest is the payment made for the money borrowed or lent.
The sum of principal and interest is called the amount.
The interest paid on `100 for a specified period is called rate.
The period for which money is borrowed or lent is called time period or time.
If the interest is calculated on the original principal for any given time and rate, then the interest is known as simple interest.
When the interest which becomes due is not paid to the moneylender, but is added to the principal, then this amount becomes the principal for the next period. The difference between the final amount and the original principal is called the compound interest.
One can find the compound interest by adding together the interest of consecutive periods. This is also called the “Compound Interest as Repeated Simple Interest”.
In case of simple interest, the interest is same every year. In case of compound interest, the interest increases every year. This is because of increase in principal.
Compound interest can be calculated by adding together the interest of consecutive periods or by using the Compound Interest Formula.
The amount can be calculated by using formulae when
the period is n years and m months
the interest is compounded half-yearly
the interest is compounded quarterly
the rates of successive years are different
If the value of an article (machinery, house, etc.) is decreasing year by year, then it is said that the cost of the article is depreciating.
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