Simple and Compound Interest

Front

What is the formula for simple interest?

Back

I = Prt, 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 the formula for 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, n is the number of times that interest is compounded per year, and t is the number of years.

Front

What does 'principal' mean in finance?

Back

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

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.

Front

If you invest $1,000 at a simple interest rate of 5% for 3 years, how much interest will you earn?

Back

I = Prt = 1000 * 0.05 * 3 = $150.

Front

How do you calculate the total amount after applying simple interest?

Back

Total Amount = Principal + Interest = P + I.

Front

What is the effective annual rate (EAR)?

Back

The effective annual rate is the interest rate on an investment or loan that is compounded annually, reflecting the effects of compounding over a year.

Front

If Mr. Johnson borrowed $8000 for 4 years and repaid $10,320, what was the interest earned?

Back

Interest earned = Total repaid - Principal = $10,320 - $8,000 = $2,320.

Front

How do you find the interest rate if you know the principal, interest, and time?

Back

Use the formula r = I / (Pt), where I is the interest, P is the principal, and t is the time in years.

Front

What is the total amount after 15 years if $475 is deposited at an interest rate of 3.8% compounded annually?

Back

Total Amount = $831.10.