00:03
So we are going to go over two vocab terms, compound interest and continuously compounding.
00:09
Let's think about what simple interest is.
00:12
Let's say that you have $100 inside of your bank account and your bank account pays you 10 % interest, simple interest.
00:20
So in this case, you would just take $10 % of $100, that's $10, and then the next year you would just take $10 % of $100 again.
00:29
However, compound interest is slightly different in the fact that it is considered interest on interest.
00:37
So in this case, if you're doing compound interest, what you would do is you would take your $100, take 10 % of that, and add that $10 that you gained as interest back onto the original amount.
00:48
So now we have $110.
00:51
We would take the interest of $110 next time.
00:55
So we would take 10 % of $110 or $11 and add that to the $110.
01:00
So basically compound interest is interest on interest.
01:06
The interest that you had earned previously is now gaining more interest for you.
01:11
It's now earning more interest for you...