# COMPOUND AND SIMPLE INTEREST

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• Hmmmm. It's a great morning. Today, I'm planning to go to a bank to know how much I will pay if I borrow money from them.
• Hey Francis ! Would you mind if ﻿you accompany me to the bank?
• Actually my uncle, Mr. Mon works at the bank nearby.
• No, it's fine.
• ﻿Good Morning ! How can I help you?
• I just want to make sure and to know how much interest that I will be paying before borrowing or having a loan from your bank.
• Mr. Mon, I'm with my friend, Sebastian. He wants to borrow money form your bank.
• Yeah, sure.
• I see. Let's go to the other room and I'll show you how we compute the interest rate of your desired loan or borrowing amount.
• So basically, simple interest essentially works when you're a borrower, but against you when you're an investor.
• Now, let's get started. ﻿Okay ! Lets get started. ﻿
• We assume that you will borrow \$500,000 for three years from our bank, and we will give you simple interest at 5% annually. How much would you have to pay in interest charges every year, and what will be your total interest charges be after three years? I'll show you.
• (\$500,000 x 5% x 1) is equals to \$25,000 . So, you would have to pay \$25,000 in interest charges every year. Multiply it by three is equals to \$75,000 in total interest charges after three years.
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