Chapter 2 Banking Services

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 is compound interest calculated?

Back

Compound interest is calculated using the formula 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 the money is invested or borrowed.

Front

What does 'compounded monthly' mean?

Back

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

Front

What is the formula for calculating the future value of an investment?

Back

The future value (FV) of an investment can be calculated using the formula FV = P(1 + r/n)^(nt).

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

What is an Automated Teller Machine (ATM)?

Back

An Automated Teller Machine (ATM) is a machine that allows people to access their bank accounts to withdraw cash, deposit money, and perform other banking transactions.

Front

What information must be included on a check?

Back

A check must include the signature of the account holder, the current date, the amount of money, and the name of the payee.

Front

What is the significance of the interest rate in banking?

Back

The interest rate determines how much money will be earned on deposits or paid on loans, influencing savings and borrowing decisions.

Front

How do you calculate the total interest earned on an investment?

Back

Total interest earned can be calculated by subtracting the principal amount from the final amount (A - P).

Front

What does it mean for interest to be compounded continuously?

Back

Continuous compounding means that interest is calculated and added to the principal at every possible moment, leading to a higher amount of interest earned.