Compound Interest

Front

What does Semi-Annually mean in terms of frequency per year?

Back

2 times a year.

Front

Which interest model is represented by an exponential J curve when graphed?

Back

Compound Interest.

Front

Which interest model is represented by a linear graph?

Back

Simple Interest.

Front

When calculating interest, the rate must be converted into what before multiplying?

Back

Decimal.

Front

Given an investment of $1,500, which would yield a larger balance after 5 years: 4% compounded monthly or 3.9% compounded daily?

Back

4% compounded monthly.

Front

Define Compound Interest.

Back

Interest calculated on the initial principal and also on the accumulated interest from previous periods.

Front

What is the formula for calculating 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

What is Simple Interest?

Back

Interest calculated only on the principal amount.

Front

What is the formula for calculating Simple Interest?

Back

I = PRT, where I is the interest, P is the principal, R is the rate, and T is the time.

Front

How does compounding frequency affect the total amount of interest earned?

Back

More frequent compounding results in more interest earned.