Annual Simple & Compound Interest

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 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

How do you calculate the total amount in a savings account with Simple Interest?

Back

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

Front

If you deposit $5,000 at a simple interest rate of 2.5% for 3 years, how much interest will you earn?

Back

Interest = P * r * t = 5000 * 0.025 * 3 = $375.

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

How do you find the interest earned on a compound interest investment?

Back

Interest Earned = Total Amount - Principal. Use the compound interest formula to find the total amount first.

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

If Monica deposits $6,000 at 4.25% for 8 years, how much more interest does she earn with compound interest compared to simple interest?

Back

The difference in interest earned is $330.66.

Front

What is the total amount in a savings account after 3 years with a principal of $5,000 and a simple interest rate of 2.5%?

Back

Total Amount = Principal + Interest = $5,000 + $375 = $5,375.

Front

If Ryan and Tom both deposit $3,500 for 6 years, and Tom earns more interest, how much more does he have?

Back

Tom will have $83.77 more than Ryan.