In: Accounting
Question: How does compound interest differ from simple interest?
Step 1: Definition of the interest
Interest is the amount an investor earns on the investment.
Step 2: Difference between compound interest and simple interest
In the simple interest, interest is calculated on the principal amount only. On the other hand, compound interest is calculated on principal and all previous interest.
Simple interest is one of the easiest methods to calculate the interest in this. Interest is calculated by multiplying principal, interest rate, and period.