Practice FLASHCARD: Simple Interest and Compound Interest

Front

What is Simple Interest?

Back

Simple Interest is calculated using the formula I = P * r * t, where I is the interest, 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 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 variable 'P' represent in the simple interest formula I = P * r * t?

Back

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

Front

What does the variable 'r' represent in the simple interest formula I = P * r * t?

Back

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

Front

What does the variable 't' represent in the simple interest formula I = P * r * t?

Back

't' represents the time the money is borrowed or invested, measured 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, 5% becomes 0.05.

Front

Calculate the simple interest on a loan of $8000 at an interest rate of 16.8% for 5 years.

Back

Simple Interest = 8000 * 0.168 * 5 = $6720.

Front

If Sue took a loan of $8000 at 16.8% for 5 years, how much will she pay back in total?

Back

Total Amount = Principal + Interest = $8000 + $6720 = $14720.

Front

What is the formula for calculating 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.

Front

Calculate the total amount after 3 years for an investment of $20,000 at 5.2% compounded annually.

Back

Total Amount = $20,000 * (1 + 0.052)^3 = $23,285.05.