Simple and Compound Interest (Beginners)

Front

What is Simple Interest?

Back

Simple Interest is the interest calculated only on the principal amount, or the original amount of money invested or borrowed.

Front

What is Compound Interest?

Back

Compound Interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods.

Front

What is the formula for Simple Interest?

Back

Simple Interest (SI) = Principal (P) × Rate (R) × Time (T) / 100

Front

What is the formula for Compound Interest?

Back

Compound Interest (CI) = Principal (P) × (1 + Rate (R)/100)^Time (T) - Principal (P)

Front

How do you calculate the final amount with Compound Interest?

Back

Final Amount = Principal + Compound Interest

Front

If you invest $1000 at 5% simple interest for 2 years, what is the interest earned?

Back

Interest = $1000 × 5% × 2 = $100

Front

If you invest $2000 at 3% compound interest for 3 years, what is the final amount?

Back

Final Amount = $2000 × (1 + 0.03)^3 = $2185.51

Front

What is the difference between Simple Interest and Compound Interest?

Back

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

Front

What is the principal in a loan?

Back

The principal is the original sum of money borrowed or invested, before interest.

Front

If you have $5000 at 4% compound interest for 5 years, what is the Compound Interest?

Back

Compound Interest = $5000 × (1 + 0.04)^5 - $5000 = $1082.86