Difference Between Compound And Compound Interest

Simple and compound interest along with the ethical issues of both
There are two types of interest which are; compound and simple interests. There are ethical issues associated with both simple and compound interest. Compound and simple interest have clear differences which in turn lead to differences in the ethical issues of both. Real work application of compound and simple interest includes issues such as compound and simple mortgages. Understanding the difference between simple and compound interest provides insight on the ethical issues associated with each. Some of the ethical issues in this case include possibilities of exploitation. Simple interest is usually calculated using only the amount of money deposited (Brechner, 2011). The money in this case is known as the principal. Compound interest on the other hand is usually calculated by considering the principal plus any earned interest that is in the account. A comparison and contrast between simple and compound interest shows that there is a significant difference in the final amount of interest. In calculation of simple interest, the amount one deposits at first is used in …show more content…
The ethical issues of both may become visible after time, for example, when a small loan grows into a big debt with time to be a form of exploitation. Earning of interests is a form of investment that can effectively generate wealth with time. Simple and compound and compound interest are very different in a way that there is a significant difference in the amount generated from both during the same period of time. The main similarity between simple and compound interest is that both lead to growth in the amount of money compared to the starting amount. Simple interest is mainly applicable for short term loans and accounts as opposed to compound interest which is used in long term loans and