Simple and Compound interest

Front

What is Simple Interest?

Back

Simple Interest is calculated using the formula: SI = P * r * t, where P is the principal amount, r is the rate of interest per year, and t is the time in years.

Front

What is Compound Interest?

Back

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

Front

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

Back

Total Amount = Principal + Simple Interest. Use the formula: Total Amount = P + (P * r * t).

Front

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

Back

Total Amount = Principal * (1 + r/n)^(nt).

Front

What is the difference between simple and compound interest?

Back

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

Front

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

Back

Interest = P * r * t = 1000 * 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 = 1000 * (1 + 0.05/1)^(1*3) = $1,157.63.

Front

What is the formula for calculating interest earned on a simple interest account?

Back

Interest Earned = Principal * Rate * Time.

Front

What is the formula for calculating interest earned on a compound interest account?

Back

Interest Earned = Total Amount - Principal.

Front

How does the frequency of compounding affect the total amount in a compound interest account?

Back

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