Simple and Compound Interest

Front

What is the principal in a loan?

Back

The principal is the original sum of money borrowed in a loan, before interest.

Front

What is simple interest?

Back

Simple interest is calculated only on the principal amount of a loan or investment.

Front

What is compound interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods.

Front

How do you calculate simple interest?

Back

Simple Interest = Principal × Rate × Time.

Front

What is the formula for calculating the total amount to be paid back on a simple interest loan?

Back

Total Amount = Principal + Simple Interest.

Front

If a loan has a principal of $15000, an interest rate of 3%, and a time period of 4 years, what is the simple interest?

Back

Simple Interest = $15000 × 0.03 × 4 = $1800.

Front

What is 5.6% expressed as a decimal?

Back

0.056.

Front

If a borrower chooses a simple interest loan over a compound interest loan, what is the advantage?

Back

The borrower pays less interest overall with a simple interest loan.

Front

What is the total amount owed at the end of 8 years for a $30000 loan at 7.25% simple interest?

Back

Total Amount = $30000 + ($30000 × 0.0725 × 8) = $47400.

Front

What happens to the total amount owed if no payments are made on a simple interest loan?

Back

The total amount owed increases by the amount of interest accrued over time.