Simple and Compound Interest

Front

What does the P stand for in the formula for calculating interest?

Back

P stands for the Initial amount (Principal).

Front

What is the formula for calculating compound interest when compounded continuously?

Back

A = Pe^(rt), where A is the final amount, P is the principal, r is the rate, and t is the time.

Front

What does the n represent in the compounding formula?

Back

n stands for the number of times interest is compounded per year.

Front

How do you calculate simple interest?

Back

Simple Interest = Principal (P) x Rate (r) x Time (t).

Front

What is the formula for calculating the balance in an account with compound interest?

Back

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

If you deposit $2,000 at an 8% interest rate for 5 years, what is the simple interest earned?

Back

The simple interest earned is $800.

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 been added.

Front

How do you find the total amount in an account after 3 years with a $5,000 deposit at 1.5% compounded quarterly?

Back

The total amount is $5,229.70.

Front

What is the effect of compounding frequency on the amount of interest earned?

Back

The more frequently interest is compounded, the more interest will be earned.

Front

What does the term 'annual interest rate' mean?

Back

The annual interest rate is the percentage of the principal that is paid as interest over one year.