Exploring Simple and Compound Interest Concepts

What does the principal amount refer to?

• The rate of interest charged by the bank

• The final amount after interest is applied

• The total amount of interest earned

• The initial sum of money deposited or loaned

How is simple interest calculated?

• Principal plus interest rate

• Principal divided by the rate times the time

• Principal times the rate times the time

• Principal times the rate divided by the time

If you deposit $250 at an interest rate of 4% for 3 years, how much interest will you earn with simple interest?

• $10

• $20

• $40

• $30

What distinguishes compound interest from simple interest?

• Simple interest rates are higher than compound interest rates

• Compound interest is calculated on the principal and the accumulated interest

• Simple interest is calculated on the principal only

• Compound interest is calculated only once a year

What formula represents the calculation for compound interest?

• Principal divided by (1 plus rate) to the power of time

• Principal times (1 plus rate) to the power of time

• Principal plus (rate times time)

• Principal times rate times time

What does semi-annually compounding mean?

• Interest is compounded every month

• Interest is compounded once every two years

• Interest is compounded twice in a year

• Interest is compounded once a year

How much more can you earn from compounding semi-annually compared to annually over a long period?

• There is no difference

• About the same

• Significantly less

• Slightly more

What is the interest earned on a $900 deposit at 3% simple interest over 5 years?

• $180

• $165

• $150

• $135

After 8 years, what will be the balance of a $400 account at 5% interest compounded annually?

• $620.00

• $610.00

• $600.00

• $590.98

What is the balance after compounding $2,500 at 3% interest semi-annually for 4 years?

• $3,000.00

• $3,100.00

• $2,900.00

• $2,816.23