Understanding Compounded Interest

The video tutorial explains how banks use compounded interest to calculate interest on accounts. It introduces the compounded interest formula, breaking down its components: principal, interest rate, compounding frequency, and time. The video provides examples of calculating interest with different compounding frequencies, such as quarterly and daily, demonstrating how more frequent compounding results in higher returns. The tutorial emphasizes understanding the formula and its application in solving interest problems.

What is the formula used by banks to calculate interest on savings accounts?

• Compounded Interest

• Simple Interest

• Variable Interest

• Fixed Interest

How should an interest rate be expressed in the compounded interest formula?

• As a percentage

• As a fraction

• As a whole number

• As a decimal

What is the number of compounding periods per year if interest is compounded monthly?

• 6

• 24

• 4

• 12

If an interest rate is 8% annually, what would be the quarterly interest rate?

• 2%

• 4%

• 6%

• 8%

In the example given, what is the principal amount invested?

• $500

• $2000

• $1000

• $1500

What is the final amount after 3 years with quarterly compounding at 8% interest?

• $1,300.00

• $1,500.00

• $1,268.24

• $1,200.00

How does daily compounding compare to quarterly compounding in terms of final amount?

• Daily compounding results in no interest

• Daily compounding results in a lower amount

• Daily compounding results in the same amount

• Daily compounding results in a higher amount

What is the final amount after 3 years with daily compounding at 8% interest?

• $1,268.24

• $1,271.22

• $1,300.00

• $1,500.00

How many days are assumed in a year for daily compounding?

• 360

• 366

• 370

• 365

Why is more frequent compounding beneficial?

• It reduces the interest rate

• It increases the principal

• It decreases the time period

• It results in more interest being paid