Simple & Compound Interest (8th)

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

How do you calculate the total amount with Simple Interest?

Back

Total Amount = Principal + Simple Interest. Use the formula: A = P + (P * r * t).

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 plus any interest that has already been added.

Front

If you invest $5,000 at a 4.85% simple interest rate for 15 years, how much interest will you earn?

Back

Interest = P * r * t = 5000 * 0.0485 * 15 = $3,637.50.

Front

What is the formula for calculating Compound Interest?

Back

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

How do you find the rate of interest if you know the principal, total amount, and time?

Back

Use the formula: r = (A - P) / (P * t).

Front

What is the effect of compounding frequency on Compound Interest?

Back

The more frequently interest is compounded, the more total interest will be earned. For example, interest compounded annually will yield less than interest compounded semi-annually or quarterly.

Front

If Marianne's savings account balance is $525 with a 3.5% interest rate compounded annually, what will it be after 4 years?

Back

A = 525(1 + 0.035)^4 = $602.45.

Front

What is the principal amount if you earned $475 at a 3.8% interest rate compounded annually after 15 years?

Back

Use the formula: P = A / (1 + r)^t. If A = 475, r = 0.038, and t = 15, then P = 475 / (1 + 0.038)^15.