Investments

Q&A: What is simple interest?

Simple interest is a way to calculate interest without taking compounding into account.

Real-life application: Person A receives 4% annual simple interest on a bond paid semi-annually. Person A pays $1,000 for the bond and receives $20 (4% x 1000 / 2) every 6 months. The $20 payments are not being reinvested in the bond, so they do not accrue interest.

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