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, which also includes all of 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.

Front

How do you calculate Total Amount with Simple Interest?

Back

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

Front

How do you calculate Total Amount with Compound Interest?

Back

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

Front

What is the formula for calculating Interest earned in Simple Interest?

Back

Interest = Principal * Rate * Time.

Front

What is the formula for calculating Interest earned in Compound Interest?

Back

Interest = Total Amount - Principal.

Front

If you invest $1,000 at a 5% simple interest rate for 3 years, how much interest will you earn?

Back

Interest = 1000 * 0.05 * 3 = $150.

Front

If you invest $1,000 at a 5% compound interest rate for 3 years, what will be the total amount?

Back

Total Amount = 1000 * (1 + 0.05)^3 = $1157.63.

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 accumulated interest.

Front

What is the effect of time on Compound Interest?

Back

The longer the time period, the more interest is earned due to compounding, leading to a larger total amount.