Simple and Compound Interest Practice

Front

What is Simple Interest?

Back

Simple Interest is calculated using the formula: SI = P * r * t, where P is the principal amount, r is the rate of interest per year, and t is the time in years.

Front

What is Compound Interest?

Back

Compound Interest is calculated on the initial principal and also on the accumulated interest from previous periods. The formula is: A = P (1 + r/n)^(nt), where A is the amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Front

How do you convert months to years for interest calculations?

Back

To convert months to years, divide the number of months by 12.

Front

What is the formula for calculating Compound Interest?

Back

The formula for calculating Compound Interest is: CI = A - P, where A is the total amount after interest and P is the principal.

Front

If the principal is $1,000, the interest rate is 5%, and the time is 3 years, what is the Simple Interest?

Back

Simple Interest = 1000 * 0.05 * 3 = $150.

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 accumulated interest.

Front

If you invest $2,000 at an annual compound interest rate of 4% for 5 years, what will be the total amount?

Back

Total Amount = 2000 * (1 + 0.04)^5 = $2,432.64.

Front

What is the effect of compounding frequency on Compound Interest?

Back

The more frequently interest is compounded, the more total interest will be earned. For example, compounding monthly will yield more than compounding annually.

Front

How do you calculate the total amount paid on a loan with Simple Interest?

Back

Total Amount = Principal + Simple Interest.

Front

What is the formula for calculating the total amount with Compound Interest?

Back

Total Amount = Principal * (1 + r/n)^(nt).