The Economics of Money and Banking Chapter 4 Interest and Interest Rate >>Types of Interest Rates 1 A:Simple and compound interest Interest Rate Simple interest refers to interest earned only on the principal of the Understanding Interest and initial investment. Principal rate time(in years)=interest ▣ Total future amount principal interest principal 1+rate*year) 7 GUO YING SEM TONGJI UNIVERSITYThe Economics of Money and Banking 7 GUO YING SEM TONGJI UNIVERSITY 1 Types of Interest Rates Simple interest refers to interest earned only on the principal of the initial investment.  Principal * rate * time ( in years) = interest  Total future amount = principal + interest = principal * ( 1+ rate*year) Chapter 4 Interest and Interest Rate Interest Rate Understanding Interest and A: Simple and compound interest