Compound Interest

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 is Compound Interest different from Simple Interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest of previous periods, while simple interest is calculated only on the principal amount.

Front

What is the formula for Compound Interest?

Back

A = P(1 + r/n)^(nt) where A is the amount of money accumulated after n years, including interest, P is the principal amount, 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.

Front

What does 'compounded continuously' mean?

Back

Compounding continuously means that the interest is calculated and added to the principal at every possible instant, leading to the formula A = Pe^(rt), where e is Euler's number.

Front

Convert 16% to a decimal.

Back

.16

Front

If $1,000 is invested at 16% interest compounded continuously for 5 years, what is the ending balance?

Back

$2,225.54

Front

What is the total amount paid on a loan of $195,000 at 4.3% interest compounded annually after 30 years?

Back

$689,546.99

Front

What is the better loan option for a $12,500 Jet Ski: 6 years at 8.5% compounded quarterly or 5 years at 10% compounded annually?

Back

Option B; $573.83 saved.

Front

How do you convert a percentage to a decimal?

Back

Divide the percentage by 100.

Front

What is the equation for continuous compounding for an investment of $1,200 at 9% for 10 years?

Back

A = 1200e^(0.09*10) or A = 1200e^(0.9).