compound interest

Multiple Choice

What is the main difference between simple and compound interest?

• Simple interest earns interest on interest, compound interest does not.

• Compound interest earns interest on both the principal and previously earned interest.

• Simple interest grows faster than compound interest.

• Compound interest is only used for loans, not savings.

Multiple Choice

If interest is compounded more frequently (for example, monthly instead of yearly), what happens to the account balance?

• It grows more slowly

• It stays the same

• It grows faster

• It decreases over time

Multiple Choice

What can you learn about saving vs. investing by using Nerdwallet’s compound interest calculator?

• The difference in interest rates

• The total amount saved

• The time it takes to save

• The benefits of investing

Fill in the Blanks

Enter the following information into the compound interest calculator to represent a savings account:

Initial Deposit: $5,000

Contributions: $0

Investment Time Span: 30

Estimated Rate of Return: 1.25%

Compound Frequency: Annually

How much is your future balance?

Fill in the Blanks

Enter the information into the compound interest calculator to represent investing in the stock market:

Initial Deposit: $5,000

Contributions: $0

Investment Time Span: 30 years

Estimated Rate of Return: 7.00%

Compound Frequency: Annually

How much is your future balance?

Multiple Choice

Marissa makes an initial deposit of $1,000. Her contributions are $100 a month for the next 40 years. She chooses not to invest and puts her money into a savings account which earns 2% interest annually. What is the balance of Marissa’s retirement account after 40 years?

• $8,000

• $12,000

• $25, 438

• $75,352.47

Multiple Choice

Explain the concept of compound interest and its impact on savings.

• Compound interest is the interest calculated only on the initial principal and not on the accumulated interest of previous periods. It has no impact on savings.

• Compound interest is the interest calculated on the initial principal but not on the accumulated interest of previous periods. It has a minimal impact on savings.

• Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It has a significant impact on savings as it allows the account balance to grow at an increasing rate over time.

• Compound interest is the interest calculated on the accumulated interest of previous periods only. It has a negative impact on savings.

Multiple Choice

Aria and Aiden are on a quest to find the best savings account to grow their treasure! Which account will make their money grow the most?

• Account 1 - Interest rate 2%, Interest compounded daily

• Account 2 - Interest rate 1%, Interest compounded daily

• Account 3 - Interest rate 2%, Interest compounded semi-annually

• Account 4 - Interest rate 1%, Interest compounded annually

Multiple Choice

Marissa makes an initial deposit of $1,000. Her contributions are $100 a month for the next 40 years. She chooses to invest in the US stock market through an index fund with a 6.5% return annually. What is the balance of Marissa’s retirement account after 40 years?

• $4

• 209,004.23

• 22,938.13

• 229,381.83

Multiple Choice

Marissa decides she wants to retire early. She makes an initial deposit of $1,000. Her contributions are $500 a month for the next 15 years. She chooses to invest in the US stock market through an index fund with a 7% return annually. What is the balance of Marissa’s retirement account after 15 years?

• $10,000

• $50,000

• $158,311.41

• $150,000

Multiple Choice

You deposit $500 at 4% interest compounded annually for 3 years. Which value is closest to your balance at the end?

• $520

• $560

• $563

• $600

Multiple Choice

A bank advertises 3% interest compounded monthly. What does “compounded monthly” mean?

• Interest is calculated once per year

• Interest is added to the account every month

• You receive simple interest each month

• The interest rate changes every month

Poll

How confident do you feel about this topic now?

• Very confident
• Somewhat confident
• Not confident