Compound Interest Unit Flashcard

Front

What is compound interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

How is compound interest different from simple interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest of previous periods, while simple interest is calculated only on the principal amount.

Front

What is the formula for calculating compound interest?

Back

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 'compounded monthly' mean?

Back

It means that the interest is calculated and added to the principal amount every month.

Front

If you invest $3,500 at an interest rate of 4.1% compounded monthly for 47 years, how much will you have?

Back

$366,187.53

Front

How do you find the interest rate needed to reach a financial goal with compound interest?

Back

You can use the formula A = P(1 + r/n)^(nt) and solve for r, where A is the desired amount, P is the present value, n is the number of compounding periods per year, and t is the number of years.

Front

What is the future value of an investment with daily compounding?

Back

The future value can be calculated using the formula A = P(1 + r/n)^(nt), where n is the number of compounding periods per year (365 for daily compounding).

Front

How much do you need to deposit today to reach a future goal?

Back

You can rearrange the compound interest formula to find the present value: P = A / (1 + r/n)^(nt).

Front

If you have $2,000 in an account yielding 4.8% compounded daily, how long will it take to reach $3,000?

Back

8.4 years.

Front

What is the total interest paid on a loan of $5,000 at 8.5% compounded daily over 6 years?

Back

$3,325.96.