Interest Review

Front

What is compound interest?

Back

Interest calculated on the initial principal and also on the accumulated interest of previous periods.

Front

How is compound interest different from simple interest?

Back

Compound interest is calculated on the initial principal and accumulated interest, while simple interest is calculated only on the principal amount.

Front

What is the formula for compound interest?

Back

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

What does 'compounded semi-annually' mean?

Back

Interest is calculated and added to the principal twice a year.

Front

What does 'compounded quarterly' mean?

Back

Interest is calculated and added to the principal four times a year.

Front

What does 'compounded continuously' mean?

Back

Interest is calculated and added to the principal an infinite number of times per year.

Front

What is the future value of an investment?

Back

The total amount of money that an investment will grow to over a period of time, including interest.

Front

How do you calculate the total amount paid on a loan with compound interest?

Back

Use the formula A = P(1 + r/n)^(nt) to find the total amount, where A is the total amount paid, P is the principal, r is the interest rate, n is the number of compounding periods, and t is the time in years.

Front

What is the principal in finance?

Back

The original sum of money borrowed or invested, excluding any interest or profits.

Front

What is simple interest?

Back

Interest calculated only on the principal amount, not on the interest accrued.