## Quick Reference

The system by which repayment of a loan after *n* periods requires payment of a sum equal to the principal plus *n* times the interest payable for a single period. If the principal is *P* and the interest rate per period is *r*, at the end of *n* periods payment of *P*(1 + *nr*) is required. As *n* increases, the proportional rate of return to the lender goes down, as the proportional return for the (*n* + 1)th period is *rP*/[(1 + *nr*)*P*], which is a decreasing function of *n*. Simple interest is very rarely used, except for loans of very short duration.

*Subjects:*
Economics — Mathematics.

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