Calculating Simple vs. Compound Interest

This video tutorial covers the seventh-grade concept of personal financial literacy, focusing on calculating and comparing simple and compound interest. It begins with an introduction to the terms and explains how simple interest is calculated using the formula I = PRT. An example is provided to illustrate the calculation process. The video then transitions to compound interest, explaining how it differs from simple interest by including interest on the accumulated interest. The compound interest formula is introduced, and an example calculation is performed, highlighting the difference in final amounts between simple and compound interest.

What is the primary focus of personal financial literacy discussed in the video?

• Budgeting and saving

• Understanding taxes

• Calculating and comparing simple and compound interest

• Investing in stocks

What formula is used to calculate simple interest?

• A = P(1 + rt)

• I = P + rt

• I = Prt

• A = P(1 + r)^t

What is the principal amount in the context of interest calculation?

• The total amount after interest

• The initial amount of money invested or loaned

• The rate of interest per year

• The total interest earned or paid

What does the 't' represent in the simple interest formula I = Prt?

• Total amount after interest

• Time in years

• Total interest

• Transaction fees

How is the rate converted into a decimal for calculation purposes?

• Multiply by 100

• Divide by 100

• Subtract 100

• Add a decimal point at the end

If you invest $5000 at an annual interest rate of 7% for 5 years, how much simple interest will you earn?

• $1750

• $350

• $700

• $2500

What is compound interest often referred to as?

• Variable interest

• Principal interest

• Interest on interest

• Fixed interest

What formula is used to calculate the final amount with compound interest?

• A = P(1 + r)^t

• A = P(1 + rt)

• I = Prt

• A = P + (Prt)

How many times is the rate multiplied by itself in the compound interest calculation for 5 years?

• 6 times

• 5 times

• 4 times

• 3 times

What is the total amount after applying compound interest to a $5000 investment at 7% for 5 years?

• $7500

• $7000

• $6750

• $7250