Lesson: Simple Interest and Compound Interest

Rate this video: 

Comment on Simple Interest and Compound Interest

hi brent..
actually u said the principal interest formula was S.I = (principal*rate*time)
but u only explained that in the beatthegmat prblm S.I = principal*(1+rt).

which formula was correct??
gmat-admin's picture

Sorry, can you please indicate which Beat The GMAT question you're referring to. I checked the links above, and I can't tell which one you mean.

sorry .. i misunderstood someone explained with different formula for simple interest i.e A=P(1+rt) which means
t= time
p = principal
r= rate
gmat-admin's picture

The formula A=P(1+rt) computes the TOTAL VALUE of your investment after time t.

The formula S.I = principal*(1+rt) computes the TOTAL INTEREST time t, which you must add to the initial investment (P) to get the TOTAL VALUE.

hi brent... for finding compound interest
C.I= P(1+r)^t. is that correct??
gmat-admin's picture

That formula is for a specific case where r = the annual interest rate and t = the number of years.

The formula shown in the video accounts for all possible compound interests (compounded monthly, biannually, etc).

Hi Brent, do you think it is absolutely necessary to learn the formula for compound interest or is it okay to perform the calculations each time instead? Is it common to see questions with a larger no. of compoundings? I find the latter method to be much simpler.
gmat-admin's picture

The latter method is much easier, but there have been (on rare occasions) official GMAT questions that test your knowledge of the compound interest formula.

Here's one example: https://gmatclub.com/forum/if-1-were-invested-at-8-percent-interest-comp...

Sixth and Seventh questions are the same. Thanks
gmat-admin's picture

Thanks! I have deleted the duplicate link

Add a comment

Ask on Beat The GMAT

If you have any questions, ask them on the Beat The GMAT discussion forums. The average response time is typically less than 30 minutes.

Change Playback Speed

To watch our videos at faster speeds (e.g., 20% or 50% faster), download this free extension for your Chrome web browser.  

Have a question about this video?

Post your question in the Comment section below, and we’ll answer it as fast as humanly possible.