Simple and Compound Interest

Front

What is Simple Interest?

Back

Simple Interest is calculated using the formula: I = PRT, 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, 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

Calculate the Simple Interest for a principal of $10,000 at a rate of 3.5% for 7 years.

Back

Simple Interest = 10,000 * 0.035 * 7 = $2,450.

Front

What will be the total amount in the account after 7 years if $10,000 is invested at 3.5% simple interest?

Back

Total Amount = Principal + Interest = $10,000 + $2,450 = $12,450.

Front

If a bank offers 7% annual compound interest, how do you calculate the total amount after 3 years for a deposit of $1,500?

Back

Use the formula A = P(1 + r/n)^(nt). Here, A = 1500(1 + 0.07/1)^(1*3) = $1,837.56.

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

What does 'n' represent in the compound interest formula?

Back

'n' represents the number of times interest is compounded per year.

Front

Convert 4.3% to a decimal.

Back

.043

Front

What is the time unit used in the Simple Interest formula?

Back

The time must be in years.

Front

If you invest $1,500 at 7% compound interest for 3 years, what is the interest earned?

Back

Interest Earned = Total Amount - Principal = $1,837.56 - $1,500 = $337.56.