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

In the formula A = P(1 + r)^t, what does 'P' represent?

Back

'P' represents the principal amount, which is the original amount of money before interest.

Front

In the formula A = P(1 + r)^t, what does 'r' represent?

Back

'r' represents the annual interest rate (as a decimal) applied to the principal.

Front

In the formula A = P(1 + r)^t, what does 't' represent?

Back

't' represents the time the money is invested or borrowed for, in years.

Front

How do you convert a percentage to a decimal for calculations?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 2.5% becomes 0.025.

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.

Front

If Jacob borrows $500 at 2.5% compounded annually for 5 years, how much will he owe?

Back

Jacob will owe $565.70 after 5 years.

Front

If Emily spends $7,400 on furniture with 9.5% interest compounded quarterly for 8 years, how much will she pay in total?

Back

Emily will pay $15,683.28 in total after 8 years.

Front

What is the total amount Chris would owe if he chooses the compound interest plan over the simple interest plan?

Back

Chris should choose the compound interest plan, which is cheaper.