Compound Interest

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 commonly used in finance and investments.

Front

How is Compound Interest different from Simple Interest?

Back

Compound interest is calculated on the initial principal and the accumulated interest, while simple interest is calculated only on the principal amount.

Front

What is the formula for calculating Compound Interest?

Back

The formula is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, 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.

Front

If an investment of $1,000 earns 6.75% interest compounded semi-annually, how much will it be worth in 15 years?

Back

$2,706.86

Front

What does 'compounded quarterly' mean?

Back

It means that the interest is calculated and added to the principal four times a year.

Front

Convert 9.5% to a decimal.

Back

.095

Front

How many times a year is interest compounded if it is compounded monthly?

Back

12 times a year.

Front

What is the effect of compounding frequency on the total amount earned?

Back

The more frequently interest is compounded, the more total interest will be earned.

Front

If Emily spends $7,400 on furniture with 9.5% interest compounded quarterly, how much will she pay in total after 8 years?

Back

$15,683.28

Front

What is the principal amount in the context of compound interest?

Back

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