The amount of money initially invested or borrowed; it is the basis for computing
the interest for the investment or loan.
Simple interest
Simple interest is a way of computing the value of an investment based
on giving interest one time only: at the very end of the investment period.
Compound interest
Compound interest involves breaking the lifetime of the loan or
investment into many periods. During one period, simple interest is used to compute
the value of the loan or investment. During the next period, the interest for that is
based not on the original principal, but on the current value of the loan including all
interest from previous periods. Thus, with compound interest, you earn interest on
your interest.
Continuously compounded interest
This is a form of compound interest that uses,
essentially, an infinite number of infinitesimally short investment periods for computing
the interest. When this is done, we find that the exponential function with base e is a
natural way to express the investment value.