Compound and Continuous Interest

Front

What is Compound Interest?

Back

Interest calculated on the initial principal and also on the accumulated interest of previous periods.

Front

What is Continuous Interest?

Back

Interest that is calculated and added to the principal continuously, rather than at discrete intervals.

Front

What is the formula for Compound Interest?

Back

A = P(1 + r/n)^(nt), where A is the amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Front

What is the formula for Continuous Compounding?

Back

A = Pe^(rt), where A is the amount, P is the principal, r is the annual interest rate, t is the time in years, and e is Euler's number (approximately 2.71828).

Front

How do you calculate the future value of an investment compounded daily?

Back

Use the formula A = P(1 + r/n)^(nt) with n = 365.

Front

What is the effect of increasing the compounding frequency on the amount of interest earned?

Back

The more frequently interest is compounded, the more interest will be earned over time.

Front

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

Back

$2,225.54

Front

If Courtney saved $2,200 at 5.2% interest compounded daily for 4 years, what will she have?

Back

$2,708.63

Front

What is the principal in the context of interest calculations?

Back

The initial amount of money invested or loaned before interest.

Front

What does 'compounded monthly' mean?

Back

Interest is calculated and added to the principal every month.