PF - Simple and Compound Interest

Front

What does the 'P' in the simple interest formula stand for?

Back

The principal amount.

Front

What type of interest should you invest in to maximize your investment?

Back

Compound interest.

Front

What does the 'r' in the simple interest formula represent?

Back

The interest rate per year.

Front

If you invest $2000 at 6%/a, compounded semi-annually, for 7 years, what is the value of n?

Back

n = 14.

Front

If you invest money into an account that pays 6%/a, compounded quarterly, for 3 years, how many compound periods (n) are there?

Back

n = 12.

Front

Define simple interest.

Back

Simple interest is calculated on the principal amount only.

Front

Define compound interest.

Back

Compound interest is calculated on the principal and also on the accumulated interest from previous periods.

Front

What is the formula for calculating simple interest?

Back

Simple Interest (SI) = P * r * t, where P = principal, r = rate, t = time.

Front

What is the formula for calculating compound interest?

Back

Compound Interest (CI) = P(1 + r/n)^(nt) - P, where P = principal, r = annual interest rate, n = number of times interest applied per time period, t = time.

Front

How does the frequency of compounding affect the total interest earned?

Back

More frequent compounding results in more interest earned.