8.12D Simple/Compound Interest

Front

What does the variable A represent in the compound interest formula A = P(1 + r)^t?

Back

A represents the total amount of money after a certain amount of time.

Front

What is the formula for simple interest?

Back

I = Prt, 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 is the formula for compound interest?

Back

A = P(1 + r)^t, where A is the total amount, P is the principal, r is the interest rate, and t is the time in years.

Front

If a bank offers 7% annual compound interest, how do you calculate the interest earned on a deposit?

Back

Use the formula A = P(1 + r)^t to find the total amount, then subtract the principal P to find the interest.

Front

Convert 9 months into years.

Back

9 months is equal to 0.75 years.

Front

What does the variable P represent in the interest formulas?

Back

P represents the principal amount, or the initial amount of money invested or borrowed.

Front

What does the variable r represent in the interest formulas?

Back

r represents the annual interest rate (as a decimal) in the interest formulas.

Front

What does the variable t represent in the interest formulas?

Back

t represents the time the money is invested or borrowed for, measured in years.

Front

How do you calculate the total amount after 3 years with a principal of $1,500 at 7% compound interest?

Back

Use A = P(1 + r)^t: A = 1500(1 + 0.07)^3 = $1,837.56.

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 been added.