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General Science, Mathematics, and Technology

Mathematics

What is the difference between simple interest and compound interest?

Simple interest is calculated on the amount of principal only. Compound interest is calculated on the amount of principal plus any previous interest already earned. For example, $100 invested at a rate of five percent for one year will earn $5.00 after one year earning simple interest. The same $100 will earn $5.12 if compounded monthly.



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