Compound/Exponential

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 is the formula for compound interest?

Back

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the number of years the money is invested or borrowed.

Front

What does 'A' represent in the compound interest formula A = P(1 + r/n)^(nt)?

Back

In the compound interest formula, 'A' represents the total amount of money accumulated after n years, including interest.

Front

What does 'P' represent in the compound interest formula A = P(1 + r/n)^(nt)?

Back

In the compound interest formula, 'P' represents the principal amount, which is the initial amount of money invested or borrowed.

Front

What does 'r' represent in the compound interest formula A = P(1 + r/n)^(nt)?

Back

In the compound interest formula, 'r' represents the annual interest rate (in decimal form).

Front

What does 'n' represent in the compound interest formula A = P(1 + r/n)^(nt)?

Back

In the compound interest formula, 'n' represents the number of times that interest is compounded per year.

Front

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

Back

In the compound interest formula, 't' represents the number of years the money is invested or borrowed.

Front

How do you calculate the future value of an investment compounded continuously?

Back

The future value of an investment compounded continuously is calculated using the formula A = Pe^(rt), where A is the amount of money accumulated after time t, P is the principal amount, r is the annual interest rate, and e is the base of the natural logarithm.

Front

If $1,000 is invested at 16% interest compounded continuously for 5 years, what is the ending balance?

Back

The ending balance is $2,225.54.

Front

If you want to have $25,500 in 8 years at an interest rate of 2.8% compounded continuously, how much do you need to invest?

Back

You need to invest $20,383.