Engineering Economics Blog

The  terms    interest,     interest period,  and   interest rate  (introduced in Section 1.4) are useful in calculating equivalent sums of money for one interest period in the past and one period in the future.

However, for more than one interest period, the terms   simple interest  and   compound interest   become important.
  
Simple interest  is calculated using the principal only, ignoring any interest accrued in preceding interest periods. The total simple interest over several periods is computed as where I is the amount of interest earned or paid and the interest rate I is expressed in decimal form.

EXAMPLE 1.14 - Simple and Compound Interest

EXAMPLE 1.15 - Simple and Compound Interest

EXAMPLE 1.16 - Simple and Compound Interest