Compounding Interest Practice

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

How is compound interest calculated?

Back

Compound interest can be 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 (decimal), n is the number of times that interest is compounded per year, and t is the number of years the money is invested or borrowed.

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 Captain America invests $5000 at 2.5% compound interest for 6 years, what is the total interest earned?

Back

$798.46

Front

What is the formula for calculating the future value of an investment with continuous compounding?

Back

The formula is A = Pe^(rt), where A is the amount of money accumulated after time t, P is the principal amount, r is the annual interest rate, and e is the base of the natural logarithm.

Front

How much will Caiden's balance be after depositing $475 at 3.8% compounded annually for 15 years?

Back

$831.10

Front

What does 'compounded annually' mean?

Back

Compounded annually means that the interest is calculated and added to the principal once per year.

Front

What is the principal in the context of interest calculations?

Back

The principal is the initial amount of money that is either invested or borrowed before any interest is added.

Front

If you invest $1600 at an annual interest rate of 4.6% compounded continuously, what will be the amount after 4 years?

Back

$1,923.23

Front

What is the effective interest rate?

Back

The effective interest rate is the interest rate on an investment or loan that is adjusted for compounding over a given period.