Compound Interest

Front

What is Compound Interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

What does the formula A = P(1 + r)^t represent?

Back

This formula calculates the total amount (A) after t years, where P is the principal amount, r is the interest rate, and t is the time in years.

Front

What does 'A' stand for in the compound interest formula A = P(1 + r)^t?

Back

A stands for the total amount of money accumulated after n years, including interest.

Front

What does 'P' stand for in the compound interest formula A = P(1 + r)^t?

Back

P stands for the principal amount, which is the initial amount of money deposited or invested.

Front

What does 'r' represent in the compound interest formula A = P(1 + r)^t?

Back

r represents the annual interest rate (in decimal form) applied to the principal.

Front

What does 't' represent in the compound interest formula A = P(1 + r)^t?

Back

t represents the number of years the money is invested or borrowed.

Front

How do you calculate the interest earned using the compound interest formula?

Back

To find the interest earned, subtract the principal (P) from the total amount (A): Interest = A - P.

Front

If you invest $1000 at an interest rate of 5% compounded annually for 3 years, what is the total amount?

Back

Total amount = $1000(1 + 0.05)^3 = $1157.63.

Front

If you have $2000 in an account that earns 4% interest compounded annually, how much will you have after 5 years?

Back

Total amount = $2000(1 + 0.04)^5 = $2433.49.

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.