Simple and compound interest MPJH

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 of money accumulated after n years, including interest.

Front

What is the formula for calculating simple interest?

Back

I = P * r * t

Front

How do you convert months into years for interest calculations?

Back

To convert months into years, divide the number of months by 12.

Front

What is the difference between simple 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 $1,000 at a simple interest rate of 5% for 3 years, how much interest will you earn?

Back

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

Front

If you invest $1,000 at a compound interest rate of 5% compounded annually for 3 years, what will be the total amount?

Back

A = P(1 + r/n)^(nt) = 1000(1 + 0.05/1)^(1*3) = $1157.63.

Front

What is the effect of a higher interest rate on the total interest earned?

Back

A higher interest rate increases the total interest earned on both simple and compound interest.

Front

What is the effect of time on the total interest earned?

Back

The longer the time period, the more interest will be earned, especially with compound interest due to interest on interest.

Front

What is the principal amount in interest calculations?

Back

The principal amount is the initial sum of money deposited or invested before interest.