Compound Interest

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 = P(1 + r/n)^(nt), where P = principal amount, r = annual interest rate (decimal), n = number of times interest applied per time period, t = number of time periods.

Front

What does 'compounded monthly' mean?

Back

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

Front

What is the formula for calculating the total amount after compound interest?

Back

Total Amount = Principal + Compound Interest.

Front

If Mark took a loan of $25,690 at 5.2% compounded monthly for 5 years, what is the total amount he will pay?

Back

$33,299.42.

Front

What is the effect of a higher interest rate on compound interest?

Back

A higher interest rate increases the amount of interest earned or paid over time.

Front

What is the impact of time on compound interest?

Back

The longer the time period, the more interest will accumulate due to compounding.

Front

How does depreciation differ from compound interest?

Back

Depreciation is the reduction in value of an asset over time, while compound interest is the growth of an investment or loan due to interest.

Front

If a car worth $20,000 depreciates by 4% per year, what is its value after 5 years?

Back

$16,307.45.

Front

What is the formula for calculating depreciation?

Back

Depreciated Value = Initial Value * (1 - rate)^time.