Review Questions: Simple and Compound Interest, and Logic

What is simple interest?

• Interest earned only on the principal

• Interest earned on both principal and interest

• Interest deducted from the loan

• None of the above

Identify the formula for Simple Interest.

• I = P × R × T

• I = P(1 + RT)

• I = P + RT

• I = P / RT

The principal refers to:

• The total amount after interest

• The original amount of money invested or borrowed

• The rate of interest

• The time period of investment

If ₱5,000 is borrowed at 6% simple interest for 2 years, what is the interest?

• ₱500

• ₱600

• ₱720

• ₱1,000

The amount (A) in simple interest is found by:

• SI = P + I

• SI = P - I

• SI = P × I

• SI = P / I

What is compound interest?

• Interest that is calculated once per year only

• Interest computed on the principal and the accumulated interest

• Interest given only at the end of time period

• Interest on loans only

The formula for compound amount when compounded annually is:

• F = P + rt

If P10,000 is invested at 10% compounded annually for 2 years, what is the total amount?

• P10,100

• P11,000

• P12,100

• P12,000

What does the variable r represent in the interest formulas?

• Rate of time

• Rate of interest per period (in decimal)

• Ratio of principal to amount

• Remaining balance

When interest is compounded more than once a year, the formula used is:

• A = P + rt