Simple interest vs. Compound interest
The difference between simple and compound interest is the difference between night and day.
You will want to remember this simple rule: simple interest grows slowly, compounding speeds
up the process.
Simple interest is interest on the principle amount while compound interest is when your
principle and any earned interest earned interest. If you have invested money into an account you
always want compound interest. Moreover, the relative advantages of compound interest escalate
as your holding period increases.
An example might help simplify things.
Suppose you have $100 to invest. You decide to invest it at the Hogg National Bank. It is a small
bank located in the heart of Hazard County. You walk in and speak with the Boss. He says he
will pay 10% simple interest on your $100.
Not knowing he is up to something, you accept the offer and invest your $100. You are all
excited and go home and start calculating how much you will have in the future. (Investing is
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 Spring '11
 P.Ramanlal
 Finance, Time Value Of Money, Compounding, Interest, Mathematical finance, $110, Hazard County

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