Simple interest is calculated only on the beginning principal.įor instance, if one were to receive 5% interest on a beginning value of $100, the first year interest would be:Ĭompound Interest Compound Interest Formula Interest may be thought of as rent paid on borrowed money. Simple interest 1 is a topic that most people cover in elementary school.

Note: You can use our interactive finance calculator to work out a number of different TVM problems. A simple introduction to working time value of money problems on a financial calculator is included as well as additional resources to help understand time value of money. This overview covers an introduction to simple interest and compound interest, illustrates the use of time value of money tables, shows a matrix approach to solving time value of money problems, and introduces the concepts of intrayear compounding, annuities due, and perpetuities. Time value of money results from the concept of interest.

The time value of money impacts business finance, consumer finance, and government finance.