INTEREST: Simple Interest vs Compound Interest vs Continuous Interest

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Welcome to the first episode of my financial math playlist! Each video we are going to cover one topic related to money, personal finance, investing, or economics. The goal is to break down the mathematical formulas involved in these topics so we can really understand and be smarter with our money.

In this first episode we are going to be talking about interest rates. We will see the formulas for simple interest, compound interest, and continuously compounded interest. We will, for instance, if you have a loan starting with an initial principle, and a particular interests rate over the term of the loan, how much money is owed at the end? Well, it depends on the type of interest. With simple interest, the same interest payment of a fixed percentage is paid every single period. With compound interest however, the amount of interest in each period goes up as there is interest on the interest. We will see how to break down an annual interest rate that is compounded monthly, for instance. Finally, continuously compounded interest is a limit as you compound more and more and more frequently.

0:00 What is interest?
1:20 Simple Interest
5:19 Compound Interest
9:27 Comparing different compounding periods
13:40 Continuously Compounded Interest

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***TYPO*** At 14:18 I completely drop the P and write just e^rt as opposed to Pe^rt for continuous interest. Doh!

DrTrefor

I can't believe it, I have followed you since last year and this year I am just starting my finance math course. If I studied it last year I wouldn't have your help. Great as always, thank you

annali

Sir. I think you are one of the best mathematics teachers on recommended your videos to all my friends and am waiting to see your channel grow...I'm a High school student from India.... thanks a lot sir for helping me and others ...I think you deserve "atleast" a million subscribers in my opinion

kshitishp

Benjamin Franklin "Money makes money. And the money that money makes, makes money." That is probably the simplest explanation of compound interest you'll ever hear.

Albert Einstein " compound interest is the most powerful in the universe "

EEFTARUNA

After a terrible 2022, shell-shocked financial backers have a lot to think about and losses to recover from. An expansion report and a wealth of other data did little to alter assumptions that the Central bank would likely keep raising interest rates regardless of whether the economy slows down. This implies that portfolios will experience more losses during the first quarter of 2023. I'm currently at a crossroads deciding whether to exchange my $250k security/stock portfolio; how might the continuous market volatility work to my advantage?

MarcusFred-wniv

My interest in your videos: continuous lol

Eduardo-crri

Thank you, kind sir. This is such a simple explanation and easy to understand. I'm back in school pursuing an engineering degree and I always like to understand the WHY behind the formulas provided. You've earned another subscriber. Have a blessed day.

qflexmoves

Thank you for this video! Learned these things in math and didn't understand the different uses and situations for them!

itsmissy_

I'm doing Class 10 AP Mathematics, and you're my go to for revision and recaps, thank you for the outstanding time, effort and thought you put in these videos to make it easier for our understanding!

RayyanSins