Which best describes interest?
Which?
Are you given choices??
First thing to do is to look up "interest" at www.onelook.com or www.dictionary.com
Let us know what you learn.
Interest refers to the amount of money paid or earned on a loan, investment, or savings account. It is typically expressed as a percentage of the principal amount being borrowed or invested. There are two main types of interest:
1. Simple Interest: In simple interest, the interest is calculated only on the original principal amount. It remains constant throughout the loan or investment period.
2. Compound Interest: In compound interest, the interest is calculated not only on the principal amount but also on the accumulated interest from previous periods. This type of interest can have a compounding frequency, such as daily, monthly, quarterly, or annually.
To calculate interest, you need to know the principal amount, the interest rate, and the time period for which the interest is being calculated. The formula for simple interest is:
Interest = Principal × Interest Rate × Time
For compound interest, the formula is slightly more complex, as it takes into account the compounding frequency:
Interest = Principal × (1 + (Interest Rate / Number of Compounding Periods))^(Number of Compounding Periods × Time) - Principal
To calculate the total amount (including principal and interest), you would add the principal and the calculated interest together.
It's important to note that interest can be either earned or paid, depending on whether you are the lender or the borrower. It serves as a way to compensate the lender for lending money or as a return on investment for the investor. For borrowers, interest represents an additional cost of borrowing money. For savers or investors, interest represents a way to grow their savings or investment over time.