Simple and Compound Interest STAAR Problems

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 of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the number of years.

Front

How do you calculate the total balance with simple interest?

Back

Total balance = Principal + Interest. Interest is calculated using the formula: I = P * r * t.

Front

How do you calculate the total balance with compound interest?

Back

Total balance = Principal * (1 + r/n)^(nt). This includes both the principal and the interest earned.

Front

What is the formula for calculating simple interest?

Back

I = P * r * t, where I is the interest, P is the principal, r is the rate of interest, and t is the time in years.

Front

What is the formula for calculating 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 times interest is compounded per year, and t is the number of years.

Front

If you deposit $1,250 at 4.25% simple interest for 4 years, what is the interest earned?

Back

Interest earned = $1,250 * 0.0425 * 4 = $212.50.

Front

If you deposit $2,500 at 4% simple interest for 3 years, what is the total balance?

Back

Total balance = $2,500 + ($2,500 * 0.04 * 3) = $2,500 + $300 = $2,800.

Front

If you deposit $2,500 at 4% compounded annually for 3 years, what is the total balance?

Back

Total balance = $2,500 * (1 + 0.04)^3 = $2,500 * 1.124864 = $2,812.16.

Front

What is the interest earned on a $2,500 deposit at 6.5% compounded annually after 2 years?

Back

Total balance = $2,500 * (1 + 0.065)^2 = $2,500 * 1.127225 = $2,818.06. Interest earned = $2,818.06 - $2,500 = $318.06.