In this section we'll deal with some basic principles of finance. You don't need to know much math, and we won't use any linear algebra or matrix methods. This section deals with interest, annuities, and amortization.
If you're confident about your mathematical ability, and you know algebra, you can probably skip the simple and compound interest portions, and go straight to annuities. If you're not a "math person," or you're not sure how interest works, read on! This portion of the tutorial is meant to make these concepts easy to understand even if you don't have much math background.
When you deposit money, let's say P dollars (P is just a variable; it means however many dollars you deposited), you get interest on that money. This is because the bank is borrowing your money, and it has to give you a fee for that. Simple interest is, like it sounds, the easiest kind to understand. Your money is multiplied by a fixed amount every year. The formula for this is:
or Interest = Principal (the amount you invested) * Rate * Time. For example, let's say I invest $1000 at a rate of 8% interest. After 5 years, the interest I have made will beI = $1000 * 0.08 * 5 = $400.
So I now have this money in addition to what I started with, and I have $1400 in the bank.
That wasn't hard, was it? Click here to go on to the next part, compound interest.