Compound Interest Formula (Part 2)

Front

What does the 'n' stand for in the compound interest formula?

Back

The number of times compounded per year.

Front

What is the formula for compound interest?

Back

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

If you invest $40,000 at 14% interest compounded annually for 6 years, how much will it be worth?

Back

$87,798.90

Front

What is the total amount paid after 8 years on a $7,400 credit purchase at 9.5% interest compounded quarterly?

Back

$15,683.28

Front

How much will Riley earn in 15 years if he invests $1,000 at 6.75% interest compounded semi-annually?

Back

$2,706.86

Front

How many times a year is interest compounded if it is compounded quarterly?

Back

4

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 and also on the accumulated interest.

Front

What does 'compounded annually' mean?

Back

Interest is calculated once a year on the principal amount.

Front

If an investment of $1,000 grows to $1,500 in 5 years with compound interest, what is the effective annual rate?

Back

Use the formula A = P(1 + r/n)^(nt) to solve for r.

Front

What is the impact of increasing the compounding frequency on the total amount earned?

Back

Increasing the compounding frequency results in a higher total amount due to interest being calculated on previously earned interest more frequently.