Compounded vs Simple Interest Concepts

The video tutorial explains how to calculate the future value of a $21,000 investment over 20 years using both simple and compound interest methods. It begins by introducing the problem and the two types of interest. The simple interest section uses the formula A = P(1 + rt) to find the balance after 20 years, resulting in $54,600. The compound interest section uses the formula A = P(1 + r/n)^(nt) to calculate the balance, which is approximately $97,880.10. The video highlights the difference between simple and compound interest, emphasizing how compound interest accumulates on the increasing balance.

What is the initial investment amount mentioned in the video?

• $10,000

• $21,000

• $50,000

• $97,880

How is the annual simple interest rate expressed in the formula?

• As a decimal

• As a fraction

• As a whole number

• As a percentage

What is the formula used to calculate simple interest?

• A = P(1 + r/n)^(nt)

• A = P(1 + rt)

• A = P(1 + r)

• A = P + rt

What is the balance after 20 years with simple interest?

• $21,000

• $100,000

• $54,600

• $97,880.10

What is the number of compounds per year for the compounded interest calculation?

• 4

• 2

• 12

• 1

What is the formula used to calculate compounded interest?

• A = P(1 + r)

• A = P(1 + r/n)^(nt)

• A = P(1 + rt)

• A = P + rt

What is the balance after 20 years with compounded interest?

• $100,000

• $21,000

• $54,600

• $97,880.10

Why is the balance higher with compounded interest compared to simple interest?

• Because interest is paid on the increasing balance

• Because the interest rate is higher

• Because the time period is longer

• Because the initial investment is higher

What is the main advantage of compounded interest over simple interest?

• It offers a fixed return

• It is easier to calculate

• It pays interest on the interest earned

• It requires less initial investment

How does the interest payment differ between simple and compounded interest?

• Both are paid on the increasing balance

• Compounded interest is paid on the initial investment only

• Both are paid on the initial investment only

• Simple interest is paid on the initial investment only