How Does The Saying “Money Breeds Money” Apply To Simple Interest?

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Question

How does the saying “money breeds money” apply to simple interest? Explain.

Answer

The saying money breeds money means that with money, you have the possibility to create more money. Simple interest is the idea that you have something, and you obtain a percentage of that every designated time period. That being said, simple interest = money breeds money. For example, say you have $100.You lend that money and charge 25% interest per year.At the end of the year, you are owed $125.At the end of the next year, you are owed $150.At the end of the year after that, you are owed $175, and so on and so on.Say the person decides to finally pay you back after 5 years. You would have turned that $100 into $225, more than doubling your money with zero effort.Therefore, money breeds money.Simple interest really begins to relate to the saying when more money and higher rates are on the line. Imagine if it was $100,000 or $100,000,000. You would have seen insane profit, doubling your net worth!

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