Simple Interest (Arithmetic)
Key points
- Simple interest is a financial application of arithmetic sequences.
- The first term is the principal (the “initial debt”) and each subsequent term is equal to the previous one plus the interest due on the principal for the the last period.
Simple Interest is a financial concept applied to the value of debt. Simple interest occurs when you add a given percentage (common difference) of the principal (initial amount), after each period (term).
- In this example, the principal is 5, and 20% (1), is being added each time.
- In the example to the right, the sequence models the amount of debt due over time.
- As time passes, the amount of debt becomes greater, or, “gains interest”.
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