Compound Interest Assignment

Front

What is compound interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

How do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 6.75% becomes 0.0675.

Front

What is the formula for calculating compound interest?

Back

The formula is 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.

Front

If you invest $1,000 at an interest rate of 5% compounded annually for 3 years, what is the future value?

Back

The future value is $1,157.63.

Front

What does 'compounded monthly' mean?

Back

Compounded monthly means that the interest is calculated and added to the principal balance each month.

Front

How much interest is earned on a $2,000 investment at 4% compounded annually after 5 years?

Back

The interest earned is $432.64.

Front

What is the principal in a loan?

Back

The principal is the original sum of money borrowed or invested, excluding any interest or fees.

Front

If you borrow $5,000 at an interest rate of 6% compounded annually for 4 years, how much total will you repay?

Back

You will repay a total of $6,360.00.

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 accumulated interest.

Front

How do you calculate the total amount after 10 years for an investment of $10,000 at 8% compounded annually?

Back

The total amount after 10 years is $21,589.25.