Compound Interest Equations

Front

What does A stand for in the compound interest formula A=P(1+r)^t?

Back

A stands for the total final amount.

Front

What does r represent in the compound interest formula A=P(1+r)^t?

Back

r represents the interest rate.

Front

What is the principal in the context of compound interest?

Back

The principal is the initial amount of money invested or borrowed.

Front

What does t represent in the compound interest formula A=P(1+r)^t?

Back

t represents the time the money is invested or borrowed for, usually in years.

Front

What is the formula for calculating compound interest?

Back

A = P(1 + r/n)^(nt), where n is the number of times interest is compounded per year.

Front

If you invest $5000 at an interest rate of 3.75% compounded monthly for 25 years, what is the ending account balance?

Back

$12,749.30

Front

If Riley invests $1,000 at 6.75% interest compounded semi-annually for 15 years, how much will he earn?

Back

$2,706.86

Front

What is the effect of compounding frequency on the total amount in a compound interest account?

Back

More frequent compounding results in a higher total amount due to interest being calculated on previously earned interest.

Front

If Treasure puts $3,000 in a bank account that earns 2.9% interest compounded quarterly for 10 years, what will she have?

Back

$4,005.09

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 earned.