**Interest**: amount of money earned by given principal money.

Borrower's Viewpoint - interest is the amount of money to be paid for the use of a borrowed capital.

Lender's Viewpoint - interest is the income generated by the capital that was lent.

**Simple Interest**- varies directly with time since it is computed after or at the end of the invested period- Ordinary Simple Interest - base on one banker's year
- Exact Simple Interest - based on exact number of days of a year, which considers ordinary year of 365 days and leap years that have 366 days

Formula: Future Worth = Present Worth + Interest Earned

(F = P + i)

**Compound Interest -**computed every end of each interest period which is called compounding interest and the interest is added to the principal (which is now interest plus principal) that will produce a bigger interest

Formula: Future Worth = Present Worth (1 + Interest Earned) ^total number of compounding period

(F = P [1 + i]^n)

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