Economics: Interest

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)