Simple and Compound Interest

Front

What is the formula for simple interest?

Back

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 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 the P in I = PRT mean?

Back

P stands for Principal, which is the initial amount of money before interest.

Front

How do you convert months to years?

Back

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

Front

If you invest $1000 at a simple interest rate of 5% for 3 years, how much interest will you earn?

Back

I = Prt = 1000 * 0.05 * 3 = $150.

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

How do you calculate the total amount after 5 years with a principal of $2000 at a 4% simple interest rate?

Back

Total Amount = Principal + Interest = 2000 + (2000 * 0.04 * 5) = $2400.

Front

What is the effective annual rate (EAR) if the nominal rate is 6% compounded quarterly?

Back

EAR = (1 + r/n)^(nt) - 1 = (1 + 0.06/4)^(4*1) - 1 = 0.0614 or 6.14%.

Front

If Caiden deposited $475 at an interest rate of 3.8% compounded annually, what will be his balance after 15 years?

Back

Balance = $831.10.

Front

How much interest will Mark pay on a loan of $25,690 at a simple interest rate of 5.2% after 5 years?

Back

Interest = $6,679.40.