Compound Interest

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What is Compound Interest?

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

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What is the formula for Compound Interest?

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'P' represents the principal amount, which is the initial sum of money invested or borrowed.

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'r' represents the annual interest rate expressed as a decimal.

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't' represents the time the money is invested or borrowed for, measured in years.

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If Karla invests $1,000 at an interest rate of 6.75% compounded annually, what is the equation to find the amount after 15 years?

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If Steve deposits $5,000 at an interest rate of 4% compounded annually, what is the equation to find the value after 3 years?

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Calculate the future value of an investment of $5,000 at an interest rate of 3.75% compounded annually for 25 years.

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The future value is $12,550.80.

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CCSS.HSF.BF.A.2

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What is the difference between simple interest and compound interest?

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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.

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CCSS.7.RP.A.3

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What is the effect of compounding frequency on compound interest?

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The more frequently interest is compounded, the more interest will be accrued, leading to a higher total amount.