Compound Interest

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 calculating Compound Interest?

Back

The formula is A = P(1 + r)^t, where A is the total amount, P is the principal amount, r is the interest rate, and t is the time in years.

Front

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

Back

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)^t?

Back

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)^t?

Back

r represents the annual interest rate (in decimal form) applied to the principal.

Front

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

Back

t represents the time the money is invested or borrowed for, in years.

Front

If Trevor invests $1500 at an interest rate of 12% compounded annually, how much will he have after 4 years?

Back

He will have approximately $2,080.16.

Front

If Julia invests $1000 at an interest rate of 5% compounded annually for 4 years, how much will she have?

Back

She will have $1,215.51.

Front

How do you convert a percentage to a decimal for use in the compound interest formula?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 12% becomes 0.12.

Front

What is the difference between simple interest and compound interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest.