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# Compound Interest and Simple Interest Notes

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### Compound(ing) Interest,

3. Principal and Interest: Principal is the amount invested or borrowed. Interest is the money that one pays or earns in addition to the principal invested or borrowed. In other words, if you take out a loan, you will pay back the principal plus the interest
4. Interest Rate Interest Rate is expressed as a percentage. It is the annual fee placed on a loan or investment Currently, banks are charging a 4-5% interest rate on a car. Credit card companies are charging about 15% interest rate, (up to 22%)
5. Interest Rate So, A borrower desires a __________ interest rate. An investor desires a __________ interest rate.
6. Compound(ing) Interest Compound(ing) Interest is when earned interest is added to the principal. It is Interest that is earned not only on the principal but also on the interest already earned
7. Compounding Interest Example For example, if someone deposits \$2,000 in an account that pays interest at 8 percent, he or she will earn \$160 in interest after one year, for a balance of \$2,160. If the depositor leaves this sum in the account for another year, however, he or she will earn \$172.80 in interest because the 8 percent rate will apply to the new balance of \$2,160, not the original \$2,000 deposit. The longer the money is left in the account, the more dramatic the compounding effect.
8. Some helpful Sites Compound interest Calculator Bankrate.com