Simple and Compound Interest

Front

What is Simple Interest?

Back

Simple Interest is the interest calculated on the principal amount only, without compounding. It is calculated using the formula I = Prt, where I is the interest, P is the principal, r is the rate, and t is the time.

Front

What is Compound Interest?

Back

Compound Interest is the interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods. It is calculated using the formula 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

What does 'P' represent in the formula I = Prt?

Back

'P' represents the principal amount, which is the initial sum of money borrowed or invested.

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What does 'r' represent in the formula I = Prt?

Back

'r' represents the annual interest rate, expressed as a decimal.

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What does 't' represent in the formula I = Prt?

Back

't' represents the time the money is borrowed or invested, usually in years.

Front

How do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 6% becomes 0.06.

Front

Calculate the simple interest for a principal of $5,000 at a rate of 4% for 3 years.

Back

I = Prt = 5000 * 0.04 * 3 = $600.

Front

If Sarah borrowed $18,000 for 4 years at an annual simple interest rate of 7%, how much interest will she pay?

Back

I = Prt = 18000 * 0.07 * 4 = $5040.

Front

What is the formula for calculating Simple Interest?

Back

The formula for calculating Simple Interest is I = Prt.

Front

What is the total amount to be paid back if $4,000 is borrowed for 5 years at 6% simple interest?

Back

Total Amount = Principal + Interest = 4000 + (4000 * 0.06 * 5) = $5200.