The term of investment assumed to be five years is the “n”.īy putting the values in the above formula, we get.The interest rate offered by the bank is the “i”, which is 7% = 0.07.The amount invested is the PV which is 100 dollars.For the term of investment, here FV is the simple interest accrued. ![]() An interest rate of 7% is offered by the bank.īy using the above mentioned formula, the simple interest on the investment can be obtained. By using following formula, simple interest is calculated.Įxample: Assume that an individual have 100 dollars today and he desire to invest his amount with a bank for five years. In other words, while calculating the interest of next period, the interest incurred in one year is not added to the principal. See Also: Different Types of Interest Theories The principal & interest are kept separately while calculating simple interest. ![]() Only on principal amount, simple interest incurs. Now It’s time to discuss them one by one in detail to know their actual meaning and use.
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