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 different from Simple Interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest of previous periods, while simple interest is calculated only on the principal amount.

Front

What is the formula for calculating Compound Interest?

Back

The formula is 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.

Front

Convert 6.75% to a decimal.

Back

.0675

Front

What does 'compounded semi-annually' mean?

Back

It means that the interest is calculated and added to the principal twice a year.

Front

If the principal is $1,000 and the interest rate is 6.75% compounded semi-annually, what will be the total amount after 15 years?

Back

$2,706.86

Front

What is the future value of a principal of $5,000 at an interest rate of 3.75% compounded monthly for 25 years?

Back

$12,749.30

Front

What does 'compounded daily' mean?

Back

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

Front

If Courtney saved $2,200 at an interest rate of 5.2% compounded daily, how much will she have in her account at the end of 4 years?

Back

$2,708.63

Front

What is the meaning of 'Principal' in finance?

Back

Principal refers to the original sum of money borrowed or invested, excluding any interest or profits.