Calculating Compound Interest and Its Impact on Savings

What is compound interest calculated on?

• Only the interest accumulated in the last period

• None of the above

• Only the initial principal

• The principal and all accumulated interest

What is the total amount after 10 years if $1,000 is compounded annually at 5%?

• $1,500

• $1,628.89

• $1,700

• $1,000

How often can interest be compounded?

• Annually

• Monthly

• All of the above

• Daily

What effect does compounding more frequently have on your returns?

• No effect

• Decreases returns

• Increases returns

• Returns become negative

What does 'P' stand for in the compound interest formula?

• Principal amount

• Periodic payment

• Profit

• Percentage rate

What is the future value of an investment compounded annually at 5% after 10 years, starting with $1,000?

• $1,500

• $2,000

• $1,628.89

• $1,000

What does 'R' represent in the compound interest formula?

• Risk factor

• Annual interest rate

• Rate of return

• Recurring deposit amount

Why is it important to start investing early?

• To benefit from lower taxes

• To avoid interest

• To maximize the effect of compounding

• To reduce risk

How does compound interest affect debts?

• Reduces the total debt over time

• Has no effect on the debt

• Converts debt into equity

• Increases the total debt over time

What is the key advantage of compound interest in long-term financial planning?

• It reduces the principal amount

• It allows for frequent withdrawals

• It leads to exponential growth of the investment

• It simplifies tax calculations