Simple and compound interest

Front

What is simple interest?

Back

Simple interest is the interest calculated only on the principal amount, or the original amount of money borrowed or invested.

Front

How is simple interest calculated?

Back

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

Front

What is compound interest?

Back

Compound interest is the interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods.

Front

How is compound interest calculated?

Back

Compound interest is calculated using the formula: 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 the variable 'A' represent in the compound interest formula?

Back

In the compound interest formula, 'A' represents the total amount of money after a certain amount of time, including both the principal and the interest.

Front

Convert 4.3% to a decimal.

Back

0.043

Front

If $1,000 is invested at 16% interest compounded annually for five years, what is the ending balance?

Back

$2,100.34

Front

What is the principal in the context of interest?

Back

The principal is the original sum of money borrowed or invested, before any interest is added.

Front

What is the difference between simple interest and compound interest?

Back

Simple interest is calculated only on the principal, while compound interest is calculated on the principal plus any accumulated interest.

Front

What is the formula for calculating simple interest?

Back

I = P * r * t, where I is interest, P is principal, r is rate, and t is time.