Simple, Compound, and Continuous Compound Interest

Front

What is the formula for simple interest?

Back

I = Prt, where I is the interest, P is the principal, r is the rate of interest per year, and t is the time in years.

Tags

CCSS.6.EE.B.6

Front

What does the 'P' in the simple interest formula I = Prt represent?

Back

The 'P' represents the principal, which is the amount of money borrowed or deposited.

Tags

CCSS.8.EE.C.7B

Front

What is the formula for compound interest?

Back

A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, P is the principal, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the number of years.

Front

What is continuous compound interest?

Back

Continuous compound interest is calculated using the formula A = Pe^(rt), where e is Euler's number (approximately 2.71828), P is the principal, r is the annual interest rate, and t is the time in years.

Front

Calculate the balance for a $5000 deposit earning 1.5% compounded quarterly after 3 years.

Back

$5,229.70

Front

Calculate the balance for a $12,000 principal earning 4.8% compounded annually after 7 years.

Back

$16,661.35

Front

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

Back

$2,225.54

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 and also on the accumulated interest from previous periods.

Tags

CCSS.HSF.BF.A.2

Front

What does 'compounded quarterly' mean?

Back

It means that the interest is calculated and added to the principal four times a year.

Front

What is the effect of compounding frequency on the total interest earned?

Back

The more frequently interest is compounded, the more total interest will be earned over time.