Interest and Yield
Simple Interest: Interest paid periodically as it comes due
In = r•P
Itotal = m•r•P
A = P•(1 + m•r)
where P is the pricipal amount, r is the interest rate per payment period,
In is the interest payment for the nth
payment period, m is the number of payment periods and Itotal
is the total interest paid. A is the total return on the investment
once the pricipal is paid at the end.
Compound Interest: Interest added to the amount of the loan
P0 = P
In = r•Pn-1
Pn = Pn-1+In
A = P•(1 + r)m
Itotal = A - P = P•((1 +
r)m - 1)
effective rate reffective = (1 +
r)m - 1