Simple and Compound Interest

Front

What is Simple Interest?

Back

Simple Interest is calculated using the formula: I = P * r * t, where I is the interest, P is the principal amount, r is the rate of interest per year, and t is the time in years.

Front

What is Compound Interest?

Back

Compound Interest is calculated on the initial principal and also on the accumulated interest from previous periods. The formula is A = P(1 + r/n)^(nt), where A is the amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Front

What does 'compounded annually' mean?

Back

Compounded annually means that the interest is calculated and added to the principal once a year.

Front

How do you convert years into months?

Back

To convert years into months, multiply the number of years by 12.

Front

What is the formula to calculate the total amount after compound interest?

Back

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

Front

If you deposit $1,000 at an interest rate of 5% compounded annually for 3 years, what is the total amount?

Back

A = 1000(1 + 0.05/1)^(1*3) = $1157.63.

Front

What is the total amount to be repaid on a loan?

Back

The total amount to be repaid is the sum of the principal and the interest accrued over the loan period.

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 already been added.

Front

What is the principal in interest calculations?

Back

The principal is the initial amount of money that is either invested or borrowed.

Front

How do you calculate interest earned on a savings account?

Back

Interest earned can be calculated using the formula: I = P * r * t, where I is the interest, P is the principal, r is the interest rate, and t is the time in years.