Terminology (Leaving Cert Mathematics): Revision Notes
Terminology
In simple interest, the interest is calculated only on the original principal amount, and it remains constant over time.
where is the principal amount (initial investment), is the annual interest rate, is the time.
In compound interest, the interest is calculated on both the principal and the accumulated interest from previous periods. This causes the total amount to grow faster than with simple interest.
where is the total amount after years, is the principal amount, is the annual interest rate and is the time in years.
APR (Annual Percentage Rate) is the annual cost of borrowing money or the annual return on an investment, expressed as a percentage. It includes not only the interest rate but also additional fees or costs associated with the transaction, providing a more comprehensive view of the actual cost or return.
AER (Annual Equivalent Rate) is a measure of the annual interest earned on a savings or investment account, assuming that the interest is compounded over the year. It standardises the interest rate to reflect the impact of compounding, making it easier to compare savings accounts and other interest-bearing investments.