Simple and Compound Interest Practice

Front

What is simple interest?

Back

Simple interest is calculated using the formula: I = P * r * t, 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

How do you calculate the total amount in an account with simple interest after a certain period?

Back

The total amount A can be calculated using the formula: A = P + I, where I is the simple interest calculated using I = P * r * t.

Front

What is compound interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods. It can be calculated using 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

What is the difference between simple interest and compound interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any interest that has already been added to the account.

Front

How do you calculate the interest earned on a principal amount of $1,000 at a rate of 5% simple interest over 3 years?

Back

Using the formula I = P * r * t, the interest earned would be I = 1000 * 0.05 * 3 = $150.

Front

If a savings account has a principal of $800 and earns 4% simple interest, how much interest will it earn in 5 years?

Back

Using the formula I = P * r * t, the interest earned would be I = 800 * 0.04 * 5 = $160.

Front

What is the formula for calculating the future value of an investment with compound interest?

Back

The future value can be calculated using the formula: A = P (1 + r/n)^(nt), where A is the future value, 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

How does the frequency of compounding affect the amount of compound interest earned?

Back

The more frequently interest is compounded, the more interest will be earned, as interest is calculated on previously accumulated interest.

Front

What is the accumulated amount in a savings account with a principal of $1,200, an annual interest rate of 3%, compounded annually for 4 years?

Back

Using the formula A = P (1 + r/n)^(nt), the accumulated amount would be A = 1200 (1 + 0.03/1)^(1*4) = $1,360.49.

Front

If an investment of $2,000 earns 6% annual interest compounded quarterly, what will be the total amount after 5 years?

Back

Using the formula A = P (1 + r/n)^(nt), the total amount would be A = 2000 (1 + 0.06/4)^(4*5) = $2,685.06.