Annual Simple & Compound Interest

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, 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 amount with Simple Interest?

Back

Total Amount = Principal + Simple Interest. Use the formula: Total Amount = P + (P * r * t).

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How do you calculate the total amount with Compound Interest?

Back

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

Front

What is the difference between Simple 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.

Front

If Ricco deposits $500 at 2.5% for 3 years, how much interest does he earn?

Back

Ricco earns $37.50 in interest.

Front

If Wally deposits $500 at 5.1% for 2 years, how much interest does he earn?

Back

Wally earns $51.00 in interest.

Front

What is the formula for calculating Simple Interest?

Back

The formula for Simple Interest is I = P * r * t.

Front

What is the formula for calculating Compound Interest?

Back

The formula for Compound Interest is A = P (1 + r/n)^(nt).

Front

How do you compare Simple and Compound Interest?

Back

To compare, calculate the interest earned over the same time period and principal amount for both methods.