Compound Interest

Front

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

Back

Semi-annually means occurring twice a year.

Front

What is the formula for calculating compound interest?

Back

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the number of years the money is invested or borrowed.

Front

If an investment of $1,000 earns 6.75% interest compounded semi-annually, how much will it be worth after 15 years?

Back

The investment will be worth $2,706.86 after 15 years.

Front

How do you calculate simple interest?

Back

Simple interest can be calculated using the formula I = PRT, where I is the interest, P is the principal amount, R is the rate of interest per year, and T is the time in years.

Front

What is the future value of an investment of $5000 at an interest rate of 3.75% compounded monthly for 25 years?

Back

The future value will be $12,749.30.

Front

What does 'compounded monthly' mean?

Back

Compounded monthly means that interest is calculated and added to the principal balance 12 times a year.

Front

How much interest is earned on a principal of $350 at an interest rate of 2.5% over 3 years?

Back

The interest earned will be $26.25.

Front

What is the total amount paid after 8 years on a credit purchase of $7,400 at 9.5% interest compounded quarterly?

Back

The total amount paid will be $15,683.28.

Front

What is the difference between compound interest and simple interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest of previous periods, while simple interest is calculated only on the principal amount.

Front

What does 'compounded quarterly' mean?

Back

Compounded quarterly means that interest is calculated and added to the principal balance 4 times a year.