Simple and Compound Interest Practice

Front

What is simple interest and how is it calculated?

Back

Simple interest is calculated using the formula: I = P * r * t, where I is the interest earned, P is the principal amount, r is the annual interest rate (in decimal), and t is the time in years.

Front

What is compound interest and how does it differ from simple interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods. Unlike simple interest, which is calculated only on the principal, compound interest grows at a faster rate.

Front

How do you convert a percentage to a decimal for calculations?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 4.85% becomes 0.0485.

Front

What is the formula for calculating the total amount in an account with compound interest?

Back

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

Front

How do you calculate the interest earned on a simple interest account after a certain number of years?

Back

Use the formula I = P * r * t, substituting the values for principal (P), rate (r), and time (t) to find the interest earned.

Front

What is the difference between annual interest and compound interest?

Back

Annual interest refers to the interest earned in one year, while compound interest refers to interest that is calculated on the initial principal and also on the accumulated interest from previous periods.

Front

How do you determine the balance in an account after a certain number of years with simple interest?

Back

The balance can be calculated using the formula: Balance = Principal + Interest, where Interest is calculated using I = P * r * t.

Front

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

Back

The time period affects the total interest earned; the longer the time period, the more interest will accumulate, especially in compound interest scenarios.

Front

How do you compare the interest earned from simple interest versus compound interest?

Back

To compare, calculate the interest earned from both methods over the same time period and principal amount. Compound interest typically yields more over time.

Front

What is the impact of the interest rate on the total interest earned?

Back

A higher interest rate results in more interest earned over the same principal and time period, whether for simple or compound interest.