College Math Unit 3 Final Exam Review

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

How do you calculate the total amount in an account after earning simple interest?

Back

Total Amount = Principal + Interest. Use the formula: A = P + (PRT).

Front

What is the formula for calculating compound interest?

Back

Compound Interest = P(1 + r/n)^(nt) - P, where 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 is the difference between nominal interest rate and effective interest rate?

Back

Nominal interest rate is the stated rate without taking compounding into account, while effective interest rate (or APY) reflects the actual interest earned or paid on an investment or loan due to compounding.

Front

How do you calculate the Annual Percentage Yield (APY)?

Back

APY = (1 + r/n)^(nt) - 1, where r is the nominal interest rate, n is the number of compounding periods per year, and t is the number of years.

Front

What is the significance of compounding frequency in interest calculations?

Back

The more frequently interest is compounded, the more interest will be earned or paid, leading to a higher effective interest rate.

Front

How do you find the present value of a future amount?

Back

Present Value = Future Value / (1 + r/n)^(nt), where r is the interest rate, n is the number of compounding periods per year, and t is the number of years.

Front

What is the formula for calculating future value with compound interest?

Back

Future Value = P(1 + r/n)^(nt), where 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

If you invest $9,500 at 7% simple interest for 20 years, how much interest will you earn?

Back

Interest = PRT = 9500 * 0.07 * 20 = $13,300.

Front

If you deposit $6,500 in an account earning 7.3% interest compounded monthly, what will be the total amount in 20 years?

Back

Total Amount = 6500(1 + 0.073/12)^(12*20) = $27,865.22.