easy · Principles of Finance time-value-of-money
What is the primary difference between simple interest and compound interest?
- There is no meaningful practical difference between the two methods once the stated interest rate exceeds 10%.
- Simple interest is conventionally applied only to bond instruments, while compound interest applies solely to equity shares.
- Compound interest is prohibited by financial regulators across most developed capital markets, unlike simple interest calculations.
- Simple interest only applies to the original principal, whereas compound interest includes interest on previous interest.
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