Compound Interest Practice

Front

What does 'Semi-Annually' mean in terms of frequency per year?

Back

It means twice a year.

Front

What is the formula for calculating compound interest?

Back

A = P(1 + r/n)^(nt), where A is the amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Front

If Shawn chooses Option A for a loan, what is the interest rate and compounding frequency?

Back

Interest rate is 8.5% compounded quarterly.

Front

If Shawn chooses Option B for a loan, what is the interest rate and compounding frequency?

Back

Interest rate is 10% compounded annually.

Front

What is the future value of an investment of $5000 at an interest rate of 3.75% compounded monthly for 25 years?

Back

$12,749.30.

Front

How much will the Arnold's pay for their home loan of $195,000 at 4.3% interest compounded annually after 30 years?

Back

$689,546.99.

Front

In the formula I = Prt, what does 'r' represent?

Back

'r' represents the interest rate.

Front

How must interest rates be expressed before using them in calculations?

Back

Rates must be converted into decimals.

Front

What is the principal amount in Shawn's Jet Ski purchase?

Back

$12,500.

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 and also on the accumulated interest.