Calculating Compound Interest

Front

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

Back

P stands for the initial amount (principal) invested or borrowed.

Front

What is the formula for calculating compound interest?

Back

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 (decimal), 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

If you invest $5000 at an interest rate of 3.75% compounded monthly for 25 years, what is the future account balance?

Back

$12,749.30

Front

What is the total amount paid after borrowing $7,400 at 9.5% interest compounded quarterly for 8 years?

Back

$15,683.28

Front

How much interest will the Henley's pay on a $195,000 loan at 4.3% interest compounded annually after 30 years?

Back

$494,546.99

Front

What is the future account balance for a principal of $999 at an interest rate of 5.45% compounded quarterly for 19 years?

Back

$2794.10

Front

Define 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

What does 'compounded monthly' mean?

Back

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

Front

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

Back

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

Front

If the interest rate is 6% compounded annually, how much will $1,000 grow in 5 years?

Back

Using the formula A = P(1 + r/n)^(nt), A = $1,000(1 + 0.06/1)^(1*5) = $1,338.23.