Understanding Simple and Compound Interest

The video tutorial explains the concepts of simple and compound interest, using real-world examples such as savings accounts and loans. It demonstrates how to calculate simple interest using the formula I = PRT and highlights the difference between simple and compound interest. The tutorial also discusses the implications of compound interest on credit card debt, emphasizing the importance of understanding interest rates and financial responsibility.

What is the main reason banks pay interest on savings accounts?

• To increase loan interest rates

• To reduce the number of account holders

• To thank customers for choosing their bank

• To encourage spending

Which formula is used to calculate simple interest?

• I = P + RT

• A = P(1 + r/n)^(nt)

• I = PRT

• A = P(1 + rt)

If you deposit $1,000 at a 6% interest rate for one year, how much interest will you earn?

• $6

• $600

• $6000

• $60

What is a more realistic interest rate for savings accounts in the real world?

• 0.5%

• 10%

• 6%

• 5%

How much interest would you earn with a 0.5% interest rate on $1,000 for one year?

• $500

• $5

• $50

• $0.50

What is the key difference between simple and compound interest?

• Simple interest is calculated annually, compound interest monthly

• Compound interest is always higher than simple interest

• Compound interest earns interest on interest, simple interest does not

• Simple interest is for loans, compound interest is for savings

In the compound interest formula, what does 'n' represent?

• The total time in years

• The principal amount

• The interest rate

• The number of times interest is compounded per year

If $1,000 is deposited at a 6% interest rate compounded monthly, what will be the total amount after one year?

• $1,006.18

• $1,061.68

• $1,060

• $1,600

What is a common interest rate for credit cards that compounds daily?

• 5%

• 25%

• 15%

• 10%

If you don't pay your $2,000 credit card bill for six months at a 15% interest rate compounded daily, how much will you owe?

• $2,155.74

• $2,500

• $2,050

• $2,100