Interest is well-defined as the fee of borrowing money, as in the case of interest charged on a loan balance. Contrariwise, interest can similarly be the rate paid for money on payments, therefore it can be calculated in two methods: simple interest or compound interest.

1. Describe using your own words at least 5 differences between simple and compound interest and give one example on each type? (5 Marks).

2. Identify which type of interest do you favor and why? (5 Marks).