Simple and Compound Interest

Front

What is Simple Interest?

Back

Simple Interest is calculated using the formula: I = P * r * t, 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

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, 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

How does compounding frequency affect compound interest?

Back

The frequency of compounding affects the total amount of compound interest earned. More frequent compounding results in more interest accrued.

Front

What is the formula for calculating the total amount with compound interest?

Back

A = P(1 + r/n)^(nt), where A is the total amount, P is the principal, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years.

Front

If $1,000 is invested at an interest rate of 5% compounded annually for 3 years, what is the total amount?

Back

A = 1000(1 + 0.05/1)^(1*3) = $1,157.63.

Front

What is the difference between simple and compound interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any interest that has already been added.

Front

How do you calculate the interest rate from simple interest?

Back

The interest rate can be calculated using the formula: r = I / (P * t), where I is the interest earned, P is the principal, and t is the time in years.

Front

What is the total interest earned on $3,000 at 2.9% compounded annually over 10 years?

Back

Total interest earned = $992.78.

Front

If a total of $12,000 is invested in two funds paying 9% and 11% simple interest, how do you find the amounts invested at each rate?

Back

Set up a system of equations based on the total investment and total interest to solve for the amounts.

Front

What is the total balance of an account with $2,500 at 4% simple interest after 3 years?

Back

Total balance = Principal + Interest = $2,500 + ($2,500 * 0.04 * 3) = $3,000.