Interest, Loan Repayments, & Cost of College Review

Front

What is simple interest?

Back

Simple interest is calculated only on the principal amount of a loan or investment, not on the interest that accumulates over time. The formula is: Interest = Principal x Rate x Time.

Front

What is compound interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods. The formula is: A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest.

Front

How do you calculate total repayment for a loan with simple interest?

Back

Total repayment = Principal + Interest. Interest can be calculated using the formula: Interest = Principal x Rate x Time.

Front

How do you calculate total repayment for a loan with compound interest?

Back

Total repayment = Principal x (1 + Rate)^Time.

Front

What is the principal in a loan?

Back

The principal is the original sum of money borrowed or invested, excluding any interest or fees.

Front

What does APR stand for?

Back

APR stands for Annual Percentage Rate, which is the annual rate charged for borrowing or earned through an investment.

Front

What is the difference between fixed and variable interest rates?

Back

A fixed interest rate remains the same throughout the term of the loan, while a variable interest rate can change at specified times, usually in relation to an index.

Front

If you borrow $10,000 at a 5% simple interest rate for 3 years, how much interest will you pay?

Back

Interest = Principal x Rate x Time = $10,000 x 0.05 x 3 = $1,500.

Front

What is a loan?

Back

A loan is money that is borrowed and is expected to be paid back with interest.

Front

What is the total amount paid back on a loan of $20,000 at 6% interest compounded annually for 5 years?

Back

Total amount = $20,000 x (1 + 0.06)^5 = $20,000 x 1.338225 = $26,764.50.