BUS202: Principles of Finance

This video discusses how interest rates are applied. When you need to calculate the future value of an amount using a simple interest rate, you apply the interest rate only to the initial amount. On the contrary, when you calculate the future value of an amount using the compound interest rate, you apply the interest rate not only to the initial amount but also to amounts of interest earned. The compound interest rate is commonly used by banks, credit card companies, and any other financial institution. The simple interest rate is usually applied to loans made in informal business deals, and even to loans involving family members!