Financial Lit. :Simple & Compound Interest, Terms of Loan

Front

What is the formula for calculating simple interest?

Back

The formula for simple interest is I = P * r * t, where I is the interest, P is the principal amount, r is the rate of interest (as a decimal), and t is the time in years.

Front

What does the variable 't' represent in the simple interest formula I = P * r * t?

Back

The variable 't' represents the time in years for which the money is borrowed or invested.

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

How do you calculate the total amount in a compound interest account after 'x' years?

Back

The total amount A can be calculated using the formula A = P(1 + r)^x, where P is the principal, r is the annual interest rate (as a decimal), and x is the number of years.

Front

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

Back

Using the formula A = P(1 + r)^x, A = 1000(1 + 0.05)^3 = $1157.63.

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.

Front

What is the principal amount in a loan?

Back

The principal amount is the original sum of money borrowed or invested, excluding any interest or fees.

Front

How do you find the total amount to be paid back on a compound interest loan?

Back

To find the total amount to be paid back, use the formula A = P(1 + r)^n, where P is the principal, r is the interest rate, and n is the number of compounding periods.

Front

If a loan of $30000 has a compound interest rate of 7.25% for 8 years, what is the total amount to be paid back?

Back

Using the formula A = P(1 + r)^n, A = 30000(1 + 0.0725)^8 = $52516.97.

Front

What is the formula for calculating simple interest?

Back

The formula for calculating simple interest is I = P * r * t.