Compound interest refers to interest that is paid not only on the principal balance, but also on any other interest that has previously accumulated. Compound interest can produce massive investment gains over long period time, and is therefore a concept that every investor should know and understand.
There are two main ways interest can be calculated – simple and compound.
As the name implies, simple interest is the easier of the two to calculate. Simple interest means interest is only calculated on the principal balance, so to calculate simple interest, simply multiply your interest rate by the number of years you’re considering and your principal balance.
– Stock investment