How is interest calculated on a loan or investment?

Interest is typically calculated using one of two methods: simple interest or compound interest. Simple interest is calculated on the principal amount only for the period of investment. Compound interest is calculated on the principal plus the accumulated interest from previous periods. The formula for simple interest is: Interest = (Principal x Rate x Time). For compound interest, the formula is: FV = PV x (1 + r/n)^(n*t), where FV is future value, PV is present value, r is annual interest rate, n is number of times interest is compounded per year, and t is time in years.