Simple interest is a straightforward financial concept used to calculate the interest earned on an initial investment or principal amount over a period of time. This interest calculation is classified as first-order linear because it depends linearly on the principal and the time period but does not compound; that is, the interest accrued each period remains constant and is not added to the principal to earn additional interest in subsequent periods.
In simple interest calculations, the interest for each period is derived directly from the original amount invested or borrowed, multiplied by the interest rate and the time the money is held. This makes it a linear relationship since the total interest earned is directly proportional to the time the money is invested. Simple interest is commonly used for short-term loans or investments where compounding is not considered.
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