Compound Interest

Front

What does 'semi-annually' mean in terms of compounding frequency?

Back

It means the interest is compounded 2 times a year.

Front

How do you calculate the interest earned on a principal amount compounded daily?

Back

Use the formula A = P(1 + r/n)^(nt), where A is the amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Front

If Joanne deposits $4300 at a rate of 2.3% compounded daily, how much interest does she earn after 1 year?

Back

She earns $100.04.

Front

What is the formula for calculating the future value of an investment compounded weekly?

Back

A = P(1 + r/n)^(nt), where n is the number of compounding periods per year.

Front

If Mike deposits $5,000 in a 3-year CD at 1.5% interest compounded weekly, what is his ending balance?

Back

His ending balance is $5,230.11.

Front

What does 'compounded annually' mean?

Back

It means the interest is calculated and added to the principal once a year.

Front

What is the formula to find the value of an account after a certain number of years with annual compounding?

Back

A = P(1 + r)^t, where A is the amount, P is the principal, r is the annual interest rate, and t is the number of years.

Front

How do you convert a percentage to a decimal?

Back

Divide the percentage by 100.

Front

What is 6.75% expressed as a decimal?

Back

.0675

Front

What is the significance of the compounding frequency in calculating compound interest?

Back

The compounding frequency affects how often interest is calculated and added to the principal, impacting the total amount earned.