Compound Interest Practice

Front

What is compound interest?

Back

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It is different from simple interest, which is only calculated on the principal amount.

Front

How is compound interest calculated?

Back

Compound interest can be calculated using the formula: 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

What does 'compounded annually' mean?

Back

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

Front

What does 'compounded monthly' mean?

Back

Compounded monthly means that the interest is calculated and added to the principal every month.

Front

If Garrison deposited $400 at 5% compound interest, how much will he have after 2 years?

Back

$441

Front

What is the future value of an investment of $9,875 at 4.8% interest compounded monthly over 12 years?

Back

Approximately $17,546.55

Front

What is the future account balance for a principal of $5000 at 3.75% interest compounded monthly over 25 years?

Back

$12,749.30

Front

If Marianne's savings account balance is $525 at 3.5% compounded annually, what will it be after 4 years?

Back

$602.45

Front

What is the ending balance for Jamere's deposit of $2350 at 3.1% interest compounded monthly after 5 years?

Back

$2,743.45

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.