Compound Interest

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 the total amount (A) in compound interest?

Back

A = P(1 + r)^t, where P is the principal amount, r is the annual interest rate (in decimal), and t is the number of years.

Front

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

Back

$1157.63

Front

What does 'compounded annually' mean?

Back

It means that the interest is calculated and added to the principal once every year.

Front

What is the principal amount (P) in compound interest?

Back

The principal amount (P) is the initial sum of money invested or loaned before interest.

Front

How do you convert a percentage to a decimal for calculations?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 5% becomes 0.05.

Front

What is the effect of increasing the interest rate on compound interest?

Back

Increasing the interest rate results in a higher total amount due to more interest being earned on the principal.

Front

If you want to find the interest earned from a compound interest account, what do you do with A and P?

Back

Subtract P (the principal) from A (the total amount) to find the interest earned.

Front

What happens to the total amount if the investment period (t) is increased?

Back

The total amount increases because interest is earned on a larger amount for a longer time.

Front

If you invest $1500 at an interest rate of 12% compounded annually for 4 years, how much will you have?

Back

$2616.65