Pre-Class Assignment 4A/4B – Week 8
Read through section 4B in your book and answer the following questions.
1) Explain in your own words the difference between simple interest and compound
Compound interest is when the bank pays you interest of the interest as well as on the
original price, so in other words it is an interest paid both on original investment and on
all interest that has been added to the original investment, while simple interest is the
interest paid only on the original investment and not on any interest added at later
What are their respective formulas?
For the compound interest, it’s formula is: accumulated balance (A) = starting principal
(P) x 1 + interest rate, (easier A = P X (1+APR) Y )
For the simple interest, it’s formula is: I (interest) = P (principal) R (rate) T (time)
Which would you prefer your bank to offer for your investments and why?
I would of course, prefer the compound interest, because from it everybody can benefit
more, if they leave their moneys inside for a long time and we all know that more moneys from
interest definitely would make us happier inside and even though we would accumulate more
fees, I still think that this is the way to go. It would also benefit the bank, as more people would
shift from the ones with the simple interest to these ones.