Compound and Simple Interest Practice

Front

Back

P represents the principal amount, which is the initial sum of money invested or borrowed.

Front

What is the formula for calculating compound interest?

Back

Front

If you invest $1,000 at an interest rate of 5% compounded annually for 3 years, what is the total amount?

Back

The total amount is $1,157.63.

Front

What does 'compounded annually' mean?

Back

Compounded annually means that the interest is calculated and added to the principal once a year.

Front

How do you calculate the interest earned on an investment?

Back

Interest earned can be calculated using the formula: Interest = Total Amount - Principal.

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

If you borrow $2,000 at an interest rate of 6% for 4 years, what is the total amount to be paid back using simple interest?

Back

The total amount to be paid back is $2,480.

Front

What is the principal in the context of loans and investments?

Back

The principal is the original sum of money borrowed or invested, before any interest is added.

Front

How do you find the total amount after 5 years if you invest $5,000 at 3% compounded annually?

Back

The total amount after 5 years is $5,000(1 + 0.03)^5 = $5,795.13.

Front

What is the formula to find the total amount for simple interest?

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