Compound Interest (total)

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 annually' mean?

Back

Compounded annually means that the interest is calculated once per year on the principal and any accumulated interest.

Front

What is the formula for total amount after compound interest?

Back

Total Amount = Principal + Compound Interest.

Front

If you invest $1000 at an interest rate of 5% compounded annually for 3 years, what is the total amount?

Back

Total Amount = 1000(1 + 0.05)^3 = $1157.63.

Front

What is the principal in a compound interest problem?

Back

The principal is the initial amount of money that is invested or borrowed before interest.

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

If you borrow $500 at a rate of 4% compounded annually for 5 years, how much will you pay back in total?

Back

Total Amount = 500(1 + 0.04)^5 = $608.81.

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, leading to a larger total amount.

Front

How does the frequency of compounding affect the total amount?

Back

More frequent compounding (e.g., monthly vs. annually) results in a higher total amount due to interest being calculated on interest more often.