Simple and Compound Interest

Front

What is the formula for calculating Simple Interest?

Back

I = Prt, where I is interest, P is principal, r is rate (as a decimal), and t is time in years.

Front

What does the 'P' in the Simple Interest formula stand for?

Back

P stands for Principal, which is the initial amount of money borrowed or invested.

Front

What does the 'r' in the Simple Interest formula represent?

Back

r represents the rate of interest, expressed as a decimal.

Front

What does the 't' in the Simple Interest formula represent?

Back

t represents the time in years for which the money is borrowed or invested.

Front

How do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100.

Front

If a bank offers a 5% interest rate, what is the decimal equivalent?

Back

0.05

Front

What is Compound Interest?

Back

Compound Interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

What is the formula for calculating Compound Interest?

Back

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 (decimal), n is the number of times that interest is compounded per year, and t is the number of years.

Front

If you deposit $1,000 at an annual interest rate of 6% compounded annually for 3 years, what will be the total amount?

Back

$1,191.016.

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 plus any interest that has already been added.