Compare Simple & Compound Interest

Front

What is Simple Interest?

Back

Simple Interest is calculated on the principal amount only. It can be calculated using the formula: Simple Interest = Principal × Rate × Time.

Front

What is Compound Interest?

Back

Compound Interest is calculated on the principal amount and also on the interest that has been added to the principal. It can be calculated using the formula: 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 do you calculate Simple Interest?

Back

Simple Interest = Principal × Rate × Time.

Front

How do you calculate Compound Interest?

Back

Compound Interest = A - P, where A is the total amount after interest and P is the principal.

Front

What is the difference between Simple 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 been added.

Front

If you invest $1000 at 5% simple interest for 3 years, how much interest will you earn?

Back

Interest = 1000 × 0.05 × 3 = $150.

Front

If you invest $1000 at 5% compounded annually for 3 years, how much will you have?

Back

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

Front

What is the formula for calculating the total amount with Compound Interest?

Back

A = P(1 + r/n)^(nt).

Front

If you deposit $800 at 6% simple interest for 10 years, how much will you have?

Back

Total Amount = Principal + Interest = 800 + (800 × 0.06 × 10) = $1280.

Front

If you deposit $800 at 6% compounded annually for 10 years, how much will you have?

Back

Total Amount = 800(1 + 0.06)^10 = $1432.68.