Compound Interest

Front

What is Compound Interest?

Back

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It is different from simple interest, which is calculated only on the principal.

Front

How is Compound Interest calculated?

Back

Compound Interest = P(1 + r/n)^(nt) - P, where P is the principal amount, r is the annual interest rate (decimal), n is the number of times interest is compounded per year, and t is the number of years.

Front

What does 'compounded semi-annually' mean?

Back

Compounded semi-annually means that the interest is calculated and added to the principal twice a year.

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 after interest, 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 $1,000 at an interest rate of 6.75% compounded semi-annually for 15 years, how much interest will you earn?

Back

$1,706.86

Front

What is the difference between annual compounding and monthly compounding?

Back

Annual compounding means interest is calculated once a year, while monthly compounding means interest is calculated every month, leading to more interest earned over time.

Front

How does the interest rate affect the total amount earned in a compound interest account?

Back

A higher interest rate increases the total amount earned because interest is calculated on a larger base amount.

Front

What is the effect of time on compound interest?

Back

The longer the money is invested or borrowed, the more interest will accumulate due to the compounding effect.

Front

If Claire invested $1,800 at 2.5% compounded semi-annually for 12 years, how much will she have after moving it to another account?

Back

$3,207.40

Front

What is the total amount paid on a loan of $25,690 at 5.2% compounded monthly after 5 years?

Back

$33,299.42