Simple and Compound Interest

Front

What is Simple Interest?

Back

Simple Interest is calculated using the formula: SI = P * r * t, where P is the principal amount, r is the rate of interest per year, and t is the time in years.

Front

What is Compound Interest?

Back

Compound Interest is calculated on the initial principal and also on the accumulated interest from previous periods. The formula is: 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

How do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 5% becomes 0.05.

Front

What is the formula for calculating Simple Interest?

Back

The formula for Simple Interest is: SI = P * r * t.

Front

What is the formula for calculating Compound Interest?

Back

The formula for Compound Interest is: A = P (1 + r/n)^(nt).

Front

If a loan of $30,000 is taken at a simple interest rate of 7.25% for 8 years, how much total will be paid back?

Back

Total amount paid back = Principal + Simple Interest = $30,000 + ($30,000 * 0.0725 * 8) = $47,400.

Front

If a loan of $30,000 is taken at a compound interest rate of 7.25% for 8 years, how much total will be paid back?

Back

Total amount paid back = A = $30,000 (1 + 0.0725/1)^(1*8) = $52,516.97.

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

What is 5.6% written as a decimal?

Back

5.6% as a decimal is 0.056.

Front

What is 5% written as a decimal?

Back

5% as a decimal is 0.05.