Answer to Question #271761 in Financial Math for Rei

Question

Financial goals should be one of your top priority when you graduate from senior highschool. How would the concept of simple and compound interest work on your favor to make sound decisions to achieve financial goals?

Answer 1

The concept of compound interest and simple interest would help me in determine the best loans lending platforms that are cheap and favourable to my operations and to the economy.

Interest is the cost of borrowing money, where the borrower is required to pay a fee to the lender for the loan after a given period of time.

In simple interest,the interest paid over a certain period is a fixed percentage of the principal that borrowed from the lender.

On the other hand,compound interest accrued and is added to the accumulated interest of previous period of lending.As a result the person to whom the loan has been lend to ends up paying interest on interest and the principal.

When lending money to others or investing in projects I would consider compound since Compound causes your investments to grow fast. It makes a sum of money grow at a faster rate than simple interest because you will earn returns on the money you invest, as well as on returns at the end of every compounding period. This means that you don't have to put away as much money to reach your goals.

When borrowing money to invest or start a business I would consider simple interest because it works in your favor since it keeps the overall amount that you pay lower .