Compound Interest Word Problems

Front

What does the 'r' stand for in the compound interest formula?

Back

Rate

Front

How many times a year is interest compounded if it is compounded semi-annually?

Back

2

Front

What is the principal amount in a compound interest problem?

Back

The initial amount of money invested or borrowed.

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 rate, n is the number of times interest is compounded per year, and t is the time in years.

Front

If you invest $5,000 at an interest rate of 3.75% compounded monthly for 25 years, what is the future account balance?

Back

$12,749.30

Front

What is the future value of a $40,000 investment at 14% interest compounded annually for 6 years?

Back

$87,798.90

Front

What does 'compounded quarterly' mean?

Back

Interest is calculated and added to the principal four times a year.

Front

If Olivia spends $7,400 on furniture with 9.5% interest compounded quarterly for 8 years, how much will she have paid in total?

Back

$15,683.28

Front

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

Back

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

Front

Define 'principal' in the context of compound interest.

Back

The original sum of money invested or loaned, before interest.