Flashcard 7-3 Review

Front

What is the formula for compound interest?

Back

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest. P is the principal amount (the initial amount of money), r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the number of years the money is invested or borrowed.

Front

What does it mean for interest to be compounded semi-annually?

Back

Compounding semi-annually means that the interest is calculated and added to the principal twice a year.

Front

Calculate the future value of an investment of $1,500 at an interest rate of 8.25% compounded semi-annually for 3 years.

Back

The future value is $1,911.70.

Front

What is the total return on a $20,000 investment at 5.2% interest compounded annually over 3 years?

Back

The total return is $23,285.05.

Front

What type of growth is represented by the function f(x) = 0.25(1.3)^x?

Back

This function represents Exponential Growth.

Front

What is the future account balance for a principal of $5,000 at an interest rate of 3.75% compounded monthly over 25 years?

Back

The future account balance is $12,749.30.

Front

Which investment yields a larger balance after 5 years: 4% compounded monthly or 3.9% compounded daily?

Back

The investment at 4% compounded monthly yields a larger balance.

Front

Define principal in the context of investments.

Back

Principal is the initial amount of money invested or loaned, before any interest or earnings.

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 and also on the accumulated interest from previous periods.

Front

What does 'compounded monthly' mean?

Back

Compounded monthly means that interest is calculated and added to the principal every month.