Exploring Compound vs. Simple Interest

The video tutorial explains how interest is calculated for both borrowing and investing. It covers the concepts of simple and compound interest, highlighting the differences between them. The tutorial provides step-by-step instructions for calculating simple interest using the formula I = PRT, and compound interest using the formula A = P(1 + R)^T. Examples are provided to illustrate the calculations, and the importance of converting percentages to decimals is emphasized. The video concludes with a comparison of the total amounts accrued through simple and compound interest.

What is the principal amount in an investment scenario?

• $8,000

• $9,000

• $5,000

• $3,000

How is the interest rate expressed for calculation?

• As a percentage

• As a fraction

• As a decimal

• As a whole number

What distinguishes compound interest from simple interest?

• Interest on principal only

• Interest on interest

• Decreasing interest rate

• Fixed interest amount

What is the formula for calculating simple interest?

• I = PRT

• A = P(1 + RT)

• I = PTR/100

• A = P + I

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

• Percentage

• Profit

• Payment

• Principal

How much simple interest is earned on $3,000 at 6% over 5 years?

• $2,000

• $900

• $1,000

• $1,800

What is the formula for compound interest?

• A = P(1 + R)^T

• I = PRT

• I = P(1 + RT)

• A = P + I

For compound interest, what does the 'T' represent?

• Total amount

• Time period

• Tax rate

• Transaction number

What is the total amount owed after applying compound interest on $3,000 at 6% for 5 years?

• $3,000

• $4,014.68

• $3,900

• $4,500

How much interest is earned through compound interest on the given scenario?

• $1,100

• $1,014.68

• $1,200

• $914.68