Chapter 1
Linear Equations and Graphing
Course: Gre
Subject: Gre Quantitative Reasoning
Chapter: Rates Ratios And Financial Math
Introduction: The Cost of Borrowing, The Reward of Saving
When you borrow money from a bank, you pay extra for the privilege. When you deposit money in a savings account, the bank pays you extra for the use of your funds. That extra money is called interest.
Simple interest is the most straightforward way to calculate interest. It is applied only to the original amount of money—the principal—and does not compound or grow over time. Understanding simple interest is essential for comparing loans, evaluating investments, and making informed financial decisions.
What Is Simple Interest?
Simple interest is interest calculated only on the original principal amount of a loan or investment. It does not take into account any interest that has previously been earned or charged. Simple interest is typically used for short-term loans (usually one year or less) and is straightforward to calculate.