Compound Interest

Front

What does the 'n' stand for in the compound interest formula?

Back

The number of times compounded per year.

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 (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

If you invest $3,000 at an interest rate of 2.9% compounded quarterly, how much will you have in 10 years?

Back

$4005.09

Front

What does 'semi-annually' mean in terms of compounding frequency?

Back

Compounding occurs 2 times a year.

Front

What does the 'r' stand for in the compound interest formula?

Back

Rate.

Front

Calculate the future value of a principal of $5,000 at an interest rate of 3.75% compounded monthly for 25 years.

Back

$12,749.30

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 and also on the accumulated interest from previous periods.

Front

Define principal in the context of compound interest.

Back

The principal is the initial amount of money that is invested or borrowed.

Front

What is the effect of increasing the compounding frequency on the total amount of interest earned?

Back

Increasing the compounding frequency results in more interest being earned, as interest is calculated on a smaller time interval.

Front

If an investment earns 5% interest compounded annually, how much will $1,000 grow in 3 years?

Back

$1,157.63.