Simple and Compound Interest

Front

What is simple interest?

Back

Simple interest is calculated using the formula I = Prt, where I is the interest, 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 on the initial principal and also on the accumulated interest from previous periods. It 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, n is the number of times that interest is compounded per year, and t is the number of years.

Front

How do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 7% becomes 0.07.

Front

What is the formula for calculating simple interest?

Back

The formula for calculating simple interest is I = Prt.

Front

If you deposit $1,500 at a 7% annual compound interest rate, how much will you have after 3 years?

Back

You will have $1,837.56 after 3 years.

Front

How much interest will you earn on a $5,000 deposit at 2.5% simple interest over 3 years?

Back

You will earn $375 in interest.

Front

What does 'P' represent in the simple interest formula I = Prt?

Back

'P' represents the principal amount, which is the initial amount of money deposited or borrowed.

Front

What does 'r' represent in the formula I = Prt?

Back

'r' represents the rate of interest, expressed as a decimal.

Front

What does 't' represent in the formula I = Prt?

Back

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

Front

What is the total amount after 5 years if you borrow $4,000 at 6% simple interest?

Back

The total amount after 5 years will be $5,200.