Comparing Simple and Compound Interest Practice

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, which also includes all of 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

How do you calculate Simple Interest?

Back

To calculate Simple Interest, use the formula: I = P * r * t.

Front

How do you calculate Compound Interest?

Back

To calculate Compound Interest, use the formula: A = P (1 + r/n)^(nt).

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 5% simple interest for 3 years, how much interest will you earn?

Back

You will earn $150 in interest.

Front

If you invest $1,000 at 5% compounded annually for 3 years, how much will you have at the end?

Back

You will have approximately $1,157.63.

Front

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

Back

Total Amount = Principal + Interest = P + (P * r * t).

Front

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

Back

Total Amount = A = P (1 + r/n)^(nt).

Front

What is the principal in interest calculations?

Back

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