Compound Interest Concepts and Calculations

The video tutorial explains compound interest, highlighting its difference from simple interest. It introduces the compound interest formula, which calculates the total amount by adding interest to the principal. The tutorial provides several examples, demonstrating how to calculate the total amount, interest earned, and initial investment using the formula. Key steps include converting rates to decimals and using exponents. The video emphasizes careful calculation and rounding when dealing with money.

What is compound interest?

• Interest calculated on the initial principal and also on the accumulated interest

• Interest calculated on the initial principal only

• Interest calculated only at the end of the investment period

• Interest that does not change over time

In the compound interest formula, what does 'A' represent?

• The time period in years

• The initial principal

• The interest rate

• The total amount of the account

Which component of the compound interest formula is always set to 1?

• Principal (P)

• The number 1 in the formula

• Rate (R)

• Time (T)

If you deposit $7,000 at an annual interest rate of 4.75% for 5 years, what will be the ending balance?

• $8,828.12

• $7,332.50

• $9,000.00

• $8,500.00

How do you convert a percentage rate to a decimal for use in the compound interest formula?

• Add 1 to the percentage

• Multiply by 100

• Divide by 100

• Subtract 1 from the percentage

For a $2,380 deposit compounded annually at 3.25% for 4 years, what is the interest earned?

• $324.81

• $300.00

• $350.00

• $400.00

What is the total amount in the account after 3 years for a $1,000 deposit compounded annually at 4.25%?

• $1,100

• $1,200

• $1,133

• $1,150

To find the interest earned, what must you do after calculating the total amount using the compound interest formula?

• Add the principal to the total amount

• Multiply the total amount by the interest rate

• Divide the total amount by the time period

• Subtract the principal from the total amount

If the total amount after 4 years is $326 and the rate is 2.1%, what was the initial investment?

• $320.00

• $310.00

• $300.00

• $299.90

What is the formula to calculate the total amount in compound interest?

• A = P * (1 + R)^T

• A = P / (1 + R)^T

• A = P + (P * R * T)

• A = P * R * T