Simple & Compound Interest Word Problems

Front

What is Simple Interest?

Back

Simple Interest is calculated using the formula: SI = P * r * t, where 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 calculated using the formula: 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

How do you calculate the total amount with Simple Interest?

Back

Total Amount = Principal + Simple Interest.

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 interest that has already been added.

Front

If you invest $1000 at a 5% simple interest rate for 3 years, how much interest will you earn?

Back

Interest = P * r * t = 1000 * 0.05 * 3 = $150.

Front

If you invest $1000 at a 5% compound interest rate compounded annually for 3 years, what will be the total amount?

Back

Total Amount = 1000 * (1 + 0.05)^3 = $1157.63.

Front

What is the formula for calculating Compound Interest?

Back

The formula is A = P (1 + r/n)^(nt).

Front

What does 'principal' mean in the context of interest?

Back

Principal is the initial amount of money that is invested or loaned.

Front

What is the rate of interest?

Back

The rate of interest is the percentage at which interest is calculated on the principal amount.

Front

What does 'time' refer to in interest calculations?

Back

Time refers to the duration for which the money is invested or borrowed, usually measured in years.