Unit 3 Review - Banking Services

Front

What is simple interest?

Back

Simple interest is calculated using the formula: Interest = Principal × Rate × Time. It is a fixed percentage of the principal amount.

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How do you calculate total amount with simple interest?

Back

Total Amount = Principal + Interest. For example, if you deposit $5,000 at 2.5% for 3 years, the interest is $375, so the total amount is $5,375.

Front

What is compound interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods. It can be calculated using the formula: A = P(1 + r/n)^(nt).

Front

What does 'compounded daily' mean?

Back

Compounded daily means that interest is calculated and added to the account balance every day. This results in more interest earned compared to less frequent compounding.

Front

How do you find the present value needed for a future goal?

Back

To find the present value (PV) needed for a future goal, use the formula: PV = FV / (1 + r/n)^(nt), where FV is the future value, r is the interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Front

What is the formula for calculating monthly deposits for a future goal?

Back

The formula is: PMT = FV / (((1 + r/n)^(nt) - 1) / (r/n)), where PMT is the monthly deposit, FV is the future value, r is the interest rate, n is the number of compounding periods per year, and t is the number of years.

Front

What is the difference between principal and interest?

Back

Principal is the original sum of money deposited or borrowed, while interest is the cost of borrowing that money or the earnings on a deposit.

Front

What is the impact of a higher interest rate on savings?

Back

A higher interest rate increases the amount of interest earned on savings, leading to a larger total amount over time.

Front

How does the time period affect interest earned?

Back

The longer the time period, the more interest is earned, as interest accumulates over time. This is especially true for compound interest.

Front

What is the total amount to be repaid on a loan?

Back

The total amount to be repaid includes the principal plus the interest accrued over the loan period.