Simple and compound interest, appreciation and depreciation

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Learn it Simple interest is earned only on the starting amount: I = Prt. Compound interest is earned on the interest too: A = P(1 + i)ⁿ, where i is the rate per period and n is the number of periods. Something that gains value (appreciates) is multiplied by (1 + r) each year; something that loses value (depreciates) is multiplied by (1 − r).

Example: $2000 is invested at 5% per year, compounded annually, for 3 years. Find the amount.

A = 2000(1.05)³
= 2000 × 1.157625
= $2315.25. (Simple interest would give only $2300.)

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