Simple & Compound Interest

Front

What is Simple Interest?

Back

Simple Interest is calculated using the formula: I = P * r * t, 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. The formula is A = P(1 + r/n)^(nt), where A is the amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Front

What does 'P' stand for in the interest formulas?

Back

P stands for Principal, which is the initial amount of money invested or borrowed.

Front

What does 'r' represent in the interest formulas?

Back

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

Front

What does 't' represent in the interest formulas?

Back

t represents the time the money is invested or borrowed for, typically in 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, 2% becomes 0.02.

Front

Calculate the Simple Interest for a principal of $2000 at a rate of 5% for 3 years.

Back

Simple Interest = P * r * t = 2000 * 0.05 * 3 = $300.

Front

Calculate the Compound Interest for a principal of $1000 at a rate of 4% compounded annually for 2 years.

Back

Compound Interest = A - P = 1000(1 + 0.04)^2 - 1000 = $40.80.

Front

What is the formula for calculating the total amount with Compound Interest?

Back

The formula is A = P(1 + r/n)^(nt), where A is the total amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Front

If $500 is invested at an interest rate of 6% compounded annually for 4 years, what is the total amount?

Back

Total Amount = 500(1 + 0.06)^4 = $632.65.