Exploring Simple and Compound Interest Concepts

David Tolliver introduces the concepts of simple and compound interest in a video tutorial for kids. Simple interest is a fixed percentage of the original loan amount, while compound interest is calculated on the current amount owed, including previous interest. The video provides examples and short clips to illustrate how each type of interest works. It concludes by comparing the two, explaining that while compound interest can accumulate more over time, both types add up significantly if loans are not repaid promptly.

What is simple interest calculated on?

• The interest rate times the number of years

• The original amount borrowed only

• The total amount owed including previous interest

• The amount remaining after partial payments

What happens to the interest amount in simple interest over time?

• It is recalculated on the new total each year

• It remains constant each year

• It increases as more interest is added

• It decreases as you pay off the principal

How does compound interest differ from simple interest?

• It is only used for short-term loans

• It decreases over time

• It is calculated on the total amount owed at the time

• It is calculated on the original amount only

What analogy is used to describe compound interest?

• A growing tree

• A shrinking balloon

• A melting ice cube

• A snowball getting bigger

What effect does compound interest have on the amount owed over time?

• It decreases

• It remains the same

• It significantly increases

• It fluctuates

Why might compound interest be more beneficial for a lender?

• It is fixed and predictable

• It can significantly increase the total amount to be repaid

• It is easier to calculate

• It generates less money over time

What happens if you don't pay off all the money you owe before the year ends?

• Interest stops accruing

• You only owe the original amount

• The remaining amount is forgiven

• The remaining amount carries over into the next year with more interest

How is the owed amount affected by payments in terms of interest?

• Payments first go towards paying off interest

• Payments reduce the principal but not the interest

• Payments reduce the total amount, affecting future interest calculations

• Interest is recalculated before payments are applied

In the context of loans, what does it mean when interest 'stacks up'?

• The interest rate increases each year

• The total amount owed grows due to accumulating interest

• The loan term is extended

• The interest amount decreases over time

What is a key takeaway regarding the repayment of interest over time?

• Longer repayment periods can significantly increase the amount owed due to interest

• The type of interest doesn't affect the total amount paid

• Simple interest always results in higher payments

• Paying early has no benefits