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 formula is used to calculate compound interest?

Back

The formula for compound interest is 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 the money is invested or borrowed.

Front

If you invest $20,000 at an interest rate of 5.2% compounded annually for 3 years, what will be the total balance?

Back

$23,285.05

Front

Which investment option yields a higher balance: 4% compounded monthly or 3.9% compounded daily after 5 years?

Back

4% compounded monthly yields a higher balance.

Front

What is the total balance of an investment of $440 at 5.8% compounded annually after 8 years?

Back

$690.78

Front

How do you round a financial answer to two decimal places?

Back

You round to the nearest cent, which means keeping two digits after the decimal point.

Front

What is the total amount earned from a $1,000 investment at 6.75% compounded semi-annually after 15 years?

Back

$2,706.86

Front

What does 'compounded semi-annually' mean?

Back

Compounded semi-annually means that the interest is calculated and added to the principal twice a year.

Front

What is the principal in an investment?

Back

The principal is the initial amount of money invested or loaned, before any interest is added.