8.12D Multi-step Interest

Front

What is multi-step interest?

Back

Multi-step interest refers to the calculation of interest over multiple periods, where the interest earned in one period is added to the principal for the next period's interest calculation.

Front

Define principal in the context of interest calculations.

Back

Principal is the initial amount of money that is invested or loaned, before any interest is added.

Front

What is the formula for calculating simple interest?

Back

The formula for calculating simple interest is: Interest = Principal × Rate × Time.

Front

How does compound interest differ from simple interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods, while simple interest is only calculated on the principal.

Front

What is the formula for compound interest?

Back

The formula for compound interest is: A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal, 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

Explain the term 'interest rate'.

Back

The interest rate is the percentage of the principal charged as interest for a specific period, typically expressed annually.

Front

What does 'time' refer to in interest calculations?

Back

In interest calculations, 'time' refers to the duration for which the money is invested or borrowed, usually measured in years.

Front

If you invest $1000 at an interest rate of 5% for 3 years, what is the simple interest earned?

Back

Simple Interest = Principal × Rate × Time = $1000 × 0.05 × 3 = $150.

Front

How do you calculate the total amount after 3 years with compound interest if the principal is $1000, the rate is 5%, and interest is compounded annually?

Back

Total Amount = A = P(1 + r/n)^(nt) = $1000(1 + 0.05/1)^(1*3) = $1000(1.157625) = $1157.63.

Front

What is the difference between annual and monthly compounding?

Back

Annual compounding means interest is calculated once a year, while monthly compounding means interest is calculated every month, leading to more interest earned over time.