Simple and Compound Interest

Front

What does the 'I' in the interest formula stand for?

Back

Interest

Front

What is the formula for calculating Simple Interest?

Back

Simple Interest (SI) = Principal (P) × Rate (R) × Time (T) / 100

Front

If you deposit $1,000 at an interest rate of 5% for 2 years, how much interest will you earn?

Back

$100

Front

What is Compound Interest?

Back

Interest calculated on the initial principal and also on the accumulated interest from previous periods.

Front

What is the formula for calculating Compound Interest?

Back

Compound Interest (CI) = P(1 + r/n)^(nt) - P

Front

If you invest $500 at an annual interest rate of 4% compounded annually for 3 years, what will be the total amount?

Back

$562.43

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 accumulated interest.

Front

If a bank offers 6% annual interest compounded quarterly, what is the effective annual rate (EAR)?

Back

EAR = (1 + r/n)^(nt) - 1, where r = 0.06, n = 4, t = 1. EAR = 0.0614 or 6.14%.

Front

What is the principal amount in the context of interest?

Back

The principal amount is the initial sum of money deposited or invested.

Front

How do you calculate the total amount after 5 years with a principal of $1,200 at an interest rate of 3% compounded annually?

Back

Total Amount = P(1 + r)^t = 1200(1 + 0.03)^5 = $1395.11