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Simple & Compound Interest

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Simple & Compound Interest

- Interest: A fee paid by a borrower of money to the owner as compensation.
- Principal: The initial sum of money borrowed.
- Rate: The percentage used to calculate interest.

- Definition: Interest is calculated as a percentage of only the principal amount.
- Formula for interest: I = P × r × t
I= interest, P = principal, R = rate, T = time

- Example: Adam borrows $250 from Brandy at a 12% simple interest rate. How much does Adam owe in 8 years?

- Definition: Interest calculated as a percentage of the principal and the previously accrued interest.
- Formula: A = P(1+r)t
A = Total amount at time “t”

- Example: Kristy borrows $1200 from Dylan at 18 percent interest compounded annually. How much does Dylan owe in 14 years How much did he pay in interest?