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 is the principal amount, r is the annual interest rate (decimal), n is the number of times interest is compounded per year, and t is the number of years.

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 you invest $1,500 at an interest rate of 8.25% compounded semi-annually, what will be the balance after 18 years?

Back

$6,427.94

Front

What is the formula to find the present value needed to reach a future goal with compound interest?

Back

Present Value = Future Value / (1 + r/n)^(nt) where Future Value is the amount desired in the future.

Front

If you want to save $5,000 in 3 years at an interest rate of 4.3% compounded monthly, how much do you need to invest now?

Back

$4,395.89

Front

What does 'compounded monthly' mean?

Back

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

Front

How much interest will a $500 deposit earn at 3% compounded annually after 6 years?

Back

$97.03

Front

What is the difference between simple interest and compound interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest.

Front

What is the effective interest rate?

Back

The effective interest rate is the interest rate on an investment or loan that is compounded over a period of time, reflecting the true cost of borrowing or the true yield on an investment.