Chapter 2 Banking Services

Front

What is a bank statement?

Back

A document produced by the bank that tracks withdrawals, deposits, and interest earned.

Front

How do you calculate compound interest?

Back

Compound interest can be calculated using the formula A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the number of years the money is invested or borrowed.

Front

What is the difference between checking and savings accounts?

Back

Checking accounts are designed for everyday transactions and typically offer unlimited withdrawals and deposits, while savings accounts are intended for saving money and usually offer limited withdrawals with interest.

Front

What is the formula for calculating the future value of an investment compounded monthly?

Back

The future value can be calculated using the formula FV = P(1 + r/n)^(nt), where FV is the future value, P is the principal, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years.

Front

What is the principal in a financial context?

Back

The principal is the initial amount of money that is either invested or borrowed, before any interest is added.

Front

What does it mean for interest to be compounded quarterly?

Back

Compounding quarterly means that the interest is calculated and added to the principal four times a year.

Front

What is the significance of the interest rate in banking?

Back

The interest rate determines how much interest will be earned on deposits or paid on loans, influencing the overall cost of borrowing and the return on savings.

Front

How much interest will $3,000 earn in 10 years at an interest rate of 2.9% compounded quarterly?

Back

$1,005.09.

Front

What is the total interest earned on an investment of $9,875 at 4.8% compounded monthly over 12 years?

Back

Approximately $7,457.95.

Front

What is the future account balance for a principal of $5,000 at an interest rate of 3.75% compounded monthly over 25 years?

Back

$12,749.30.