Final answer:
The Annual Percentage Rate (APR) is the yearly interest rate that reflects the total cost of borrowing. Simple interest is calculated on the principal alone, while compound interest includes earned interest. Fixed interest rates remain the same, while variable rates can fluctuate over time.
Step-by-step explanation:
Annual Percentage Rate (APR):
The Annual Percentage Rate, or APR, is the yearly interest rate charged on borrowed money. This rate includes not just the interest itself but also any additional fees or costs associated with the loan, giving a more complete picture of what the borrower will pay. APR is expressed as a percentage and is calculated annually irrespective of compounding within the year.
Differences Between Simple and Compound Interest Rates:
Simple interest is calculated only on the principal amount of the loan or deposit. For example, if you deposit $1,000 into a savings account with a 5% simple interest rate, you would earn $50 in interest per year, without this interest earning its own interest.
Compound interest, on the other hand, takes into account not only the original principal amount but also the accumulated interest over previous periods. This means that the interest for each period is calculated on the principal plus any previously earned interest.
Fixed VS Variable Interest Rates:
Fixed interest rates remain the same throughout the lifetime of the loan, making it easier to predict future payments. On the contrary, variable interest rates can change over time based on underlying benchmarks or indices, leading to fluctuating payment amounts.