Simple and Compound interest

Front

What is simple interest?

Back

Simple interest is calculated on the principal amount only, and it does not change over time. The formula is: Simple Interest = Principal × Rate × Time.

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 calculate the total amount in a simple interest account after a certain period?

Back

Total Amount = Principal + Simple Interest. Simple Interest = Principal × Rate × Time.

Front

How do you calculate the total amount in a compound interest account after a certain period?

Back

Total Amount = Principal × (1 + Rate/Number of Compounding Periods)^(Number of Compounding Periods × Time).

Front

What is the difference between simple and compound interest?

Back

Simple interest is calculated only on the principal, while compound interest is calculated on the principal plus any interest that has been added to it.

Front

If you invest $1,000 at a simple interest rate of 5% for 3 years, how much interest will you earn?

Back

Interest = Principal × Rate × Time = $1,000 × 0.05 × 3 = $150.

Front

If you invest $1,000 at a compound interest rate of 5% compounded annually for 3 years, what will be the total amount?

Back

Total Amount = $1,000 × (1 + 0.05)^3 = $1,157.63.

Front

What is the formula for calculating simple interest?

Back

Simple Interest = Principal × Rate × Time.

Front

What is the formula for calculating compound interest?

Back

A = P(1 + r/n)^(nt), where A is the total 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 does the time period affect simple interest?

Back

The longer the time period, the more interest will be earned, as it is directly proportional to time.