CA Foundation Exam > CA Foundation Videos > Quantitative Aptitude for CA Foundation > Difference between Simple Interest and Compound Interest
Difference between Simple Interest and Compound Interest Video Lecture | Quantitative Aptitude for CA Foundation
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FAQs on Difference between Simple Interest and Compound Interest Video Lecture - Quantitative Aptitude for CA Foundation
| 1. What is the difference between simple interest and compound interest? |  |
Ans. Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal amount and the accumulated interest from previous periods. In simple interest, the interest remains constant throughout the entire period, while in compound interest, the interest amount keeps increasing with each compounding period.
| 2. How is simple interest calculated? | |
Ans. Simple interest is calculated using the formula: Interest = (Principal amount) x (Rate of interest) x (Time period). The interest is directly proportional to the principal amount, rate of interest, and time period.
| 3. How is compound interest calculated? | |
Ans. Compound interest is calculated using the formula: A = P(1 + r/n)^(n*t), where A is the total amount including the principal and interest, P is the principal amount, r is the annual interest rate, n is the number of compounding periods per year, and t is the time period in years.
| 4. Which type of interest yields higher returns, simple interest or compound interest? | |
Ans. Compound interest yields higher returns compared to simple interest. This is because in compound interest, the interest is reinvested and added to the principal amount, resulting in exponential growth. On the other hand, simple interest only considers the principal amount, leading to lower returns.
| 5. How does the frequency of compounding affect compound interest? | |
Ans. The frequency of compounding refers to how often the interest is added to the principal amount. The more frequent the compounding, the higher the compound interest. For example, if the interest is compounded annually, the interest is added once a year. However, if it is compounded quarterly, the interest is added four times a year, resulting in higher overall interest earnings.
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