Q: What does the Simple Interest Calculator do?
A: The Simple Interest Calculator calculates the interest and end balance based on the simple interest formula.
Q: How is simple interest different from compound interest?
A: Simple interest is only calculated on the initial sum (principal) borrowed or deposited, and it remains a fixed percentage for the loan duration. Compound interest, on the other hand, accrues interest on both the initial sum and any interest that accumulates, leading to potential growth over time.
Q: What is the basic formula for calculating simple interest?
A: The basic simple interest formula is: Simple Interest = Principal Amount × Interest Rate × Time.
Q: Can you explain the formula I = Prt in the context of simple interest?
A: In the formula I = Prt, "I" represents the total simple interest, "P" is the principal amount or the original balance, "r" is the annual interest rate, and "t" is the loan term in years.
Q: How can the "t" value be manipulated to calculate interest for different periods?
A: You can manipulate "t" to calculate interest for different periods. For example, if you want to calculate interest over six months, set "t" as 0.5.
Q: Which financial instruments typically use simple interest?
A: Simple interest is commonly used for short-term loans and can be found in certain bonds that pay an interest coupon or investments that offer a simple interest return as a dividend.
Q: Is simple interest beneficial for borrowers or lenders/investors?
A: Simple interest benefits borrowers since they only pay interest on the original balance. However, it may not be as advantageous for lenders/investors, as they miss out on potential growth compared to compound interest.
Q: Which financial products commonly use compound interest?
A: Most credit cards, loans, savings accounts, and investments operate using compound interest. These products offer compounding schedules, where interest is added to the original balance as well as any interest accrued over time.
