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 calculated?

Back

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

Front

What does 'compounded semiannually' mean?

Back

Compounded semiannually means that the interest is calculated and added to the principal twice a year.

Front

If $1,500 is invested at an 8.25% interest rate compounded semiannually for 18 years, what is the future value?

Back

$6,427.94

Front

What is the formula for calculating the total amount paid on a loan with compound interest?

Back

Total Amount = P(1 + r/n)^(nt), where P is the loan amount, r is the interest rate, n is the number of compounding periods 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

If a loan of $195,000 is taken at a 4.3% interest rate compounded annually for 30 years, what is the total amount paid?

Back

$689,546.99

Front

What does 'monthly' mean in terms of compounding frequency?

Back

Monthly means that the interest is compounded 12 times a year.

Front

If the principal is $999, the interest rate is 5.45%, and it is compounded quarterly for 19 years, what is the future account balance?

Back

$2794.10

Front

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

Back

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