Simple and Compound Interest Test

Front

What is the formula for Simple Interest?

Back

I = P ⋅ R ⋅ T, where I is the interest, P is the principal amount, R is the rate of interest, and T is the time in years.

Front

What does the variable 'P' represent in the Simple Interest formula?

Back

'P' represents the principal amount, which is the initial sum of money invested or borrowed.

Front

What does the variable 'R' represent in the Simple Interest formula?

Back

'R' represents the rate of interest, expressed as a decimal.

Front

What does the variable 'T' represent in the Simple Interest formula?

Back

'T' represents the time the money is invested or borrowed for, in years.

Front

How do you calculate the total amount (A) using the Compound Interest formula?

Back

A = P(1 + r/n)^(n*t), where A is the total 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 does the variable 'n' represent in the Compound Interest formula?

Back

'n' represents the number of times that interest is compounded per year.

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.

Front

If you invest $1,000 at a 5% annual interest rate for 3 years using Simple Interest, what is the interest earned?

Back

I = P ⋅ R ⋅ T = 1000 ⋅ 0.05 ⋅ 3 = $150.

Front

If you invest $1,000 at a 5% annual interest rate compounded annually for 3 years, what is the total amount?

Back

A = 1000(1 + 0.05/1)^(1*3) = 1000(1.05)^3 = $1157.63.

Front

What is the total return on an investment of $21,000 at 13.6% interest compounded quarterly for 4 years?

Back

Total return = $35,854.90.