Simple and compound interest

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 and also on the interest that has been added to it.

Front

If you have the same principal, rate, and time, which type of interest will earn you more?

Back

Compound interest will earn you more because you earn interest on both the principal and the interest earned.

Front

What does the 'P' represent in the compound interest formula?

Back

The 'P' represents the principal, which is the amount of money borrowed or deposited.

Front

How do you convert a percentage to a decimal for use in the compound interest formula?

Back

To convert a percentage to a decimal, divide the percentage by 100.

Front

What is the decimal equivalent of 4.3%?

Back

.043

Front

What must the interest rate be expressed as in the compound interest formula?

Back

The interest rate must be expressed as a decimal.

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.

Front

What does 'A' represent in the compound interest formula?

Back

A represents the total amount of money accumulated after interest, including the principal.

Front

What is the effect of compounding frequency on compound interest?

Back

The more frequently interest is compounded, the more interest will be earned, leading to a higher total amount.

Front

What is the time period in the context of interest calculations?

Back

The time period refers to the duration for which the money is borrowed or invested, typically measured in years.