Compound Interest

Front

What does 'annually' mean?

Back

It means once a year.

Front

What is the formula for compound interest?

Back

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

Front

How do you convert a percentage to a decimal?

Back

Divide the percentage by 100.

Front

What does the principal (P) represent in compound interest?

Back

The principal is the initial amount of money invested or borrowed.

Front

If Karla invests $1,000 at 6.75% compounded semi-annually, how many times is the interest compounded in one year?

Back

The interest is compounded 2 times a year.

Front

What is the rate of interest (r) in decimal form for 6.75%?

Back

.0675

Front

What does 'compounded semi-annually' mean?

Back

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

Front

If Jay'den wants to know his balance after 15 years, what does the time (t) represent?

Back

The time (t) represents the number of years the money is invested or borrowed.

Front

What is the total amount (A) after 15 years if $475 is invested at 3.8% compounded annually?

Back

Use the formula A = P(1 + r/n)^(nt) to calculate.

Front

What is the difference between simple interest and compound interest?

Back

Simple interest is calculated only on the principal, while compound interest is calculated on the principal plus any interest earned.