Understanding Financial Models
Simple vs. Compound Interest
Simple Interest: A = P(1 + rt) \\
Compound Interest: A = P(1 + r/n)^(nt)
- Simple: Interest calculated only on principal
- Compound: Interest calculated on principal + accumulated interest
Real-World Applications
- Savings account growth
- Loan amortization
- Investment returns
Financial Calculator
Compound Interest Simulator
Adjust parameters to see how investments grow over time
Result
Key Formula:
A = P(1 + r/100)n
Try It Yourself
Problem 1
Calculate the final amount: $5000 at 4% annual interest compounded yearly for 3 years.
Problem 2
You win a lottery and invest $50,000 at 6% APR compounded monthly. How much is it worth in 5 years?