Compound Interest Flashcard

Front

What is compound interest?

Back

Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods, allowing the investment to grow at a faster rate than simple interest.

Front

What is the formula for calculating compound interest?

Back

Front

What is the difference between compound interest and simple interest?

Back

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

Front

If you invest $1,000 at an annual interest rate of 5% compounded annually, how much will you have after 3 years?

Back

After 3 years, you will have approximately $1,157.63.

Front

What is the effect of compounding frequency on compound interest?

Back

The more frequently interest is compounded, the more interest will be earned on the investment, leading to a higher total amount.

Front

How does increasing the principal amount affect compound interest?

Back

Increasing the principal amount will result in a higher total amount earned from compound interest, as interest is calculated based on the principal.

Front

What is the impact of a higher interest rate on compound interest?

Back

A higher interest rate will increase the amount of interest earned over time, leading to a larger total amount.

Front

If you invest $5,000 at an annual interest rate of 8% compounded semi-annually, how much will you have after 5 years?

Back

After 5 years, you will have approximately $7,122.44.

Front

What is the total amount paid on a loan of $25,690 at an interest rate of 5.2% compounded monthly after 5 years?

Back

The total amount paid after 5 years will be approximately $33,299.42.

Front

What is the main advantage of compound interest compared to simple interest?

Back

The main advantage of compound interest is that it earns interest on both the initial principal and the accumulated interest over time.