Interest Economics

Interest can be expressed in three common ways. Two are related — simple and compound. Simple interest is a rate charged on the principle of the loan. It is calculated as simple = principle x rate x periods. The other is compound interest, which calculates interest on the principle and accumulated interest. It is calculated as compound = simple x [(1 + rate)^ time - 1]. Both can be calculated on loans or savings accounts. Compound interest is used more than simple interest.

The third form of interest is the ownership an investor can take in a company. An investor can buy a certain number of shares in a company in exchange for a percentage of ownership equal to the number of purchased shares.

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