Simple interest Simple interest is applied to the principal only. Compound interest Compound interest is applied to principal plus interest. Thus, earning compound interest will yield a greater return on your investment than simple interest. Nominal interest Nominal interest is the stated rate of interest. Compounding Compounding is the process of calculating TVM problems when using multiple periods in a calendar year, or multiple years.
Total periods are greater than one.
Intraperiod Compounding Intraperiod compounding is interest compounding for more than one period in a calendar year. It is the ratio of compound interest to principal, expressed in percent. Note - if the compounding is annually, the nominal and effective interest rate will be the same since there is only one compounding period. It is the rate of return that you require on your investment. Growth rate Growth rate is a term used to describe the process of calculating the annual growth or interest rate of a series of payments or receipts.