Compounding Interest Concepts

The video tutorial explains how the number of compounding periods per year affects the balance of an account with compounded interest. It uses a principal amount of $2,500 with a 4% annual interest rate to demonstrate calculations for annual, quarterly, and monthly compounding over five years. The tutorial provides the formula for compounded interest and shows how to apply it for different compounding frequencies, highlighting that more frequent compounding results in a higher account balance.

What is the principal amount deposited in the bank?

• $2,500

• $2,000

• $3,500

• $3,000

How is the annual interest rate expressed in the formula?

• As a whole number

• As a decimal

• As a fraction

• As a percentage

What does 'N' represent in the compounded interest formula?

• Number of years

• Number of compounds per year

• Principal amount

• Annual interest rate

If interest is compounded annually, what is the value of 'N'?

• 1

• 4

• 12

• 365

For quarterly compounding, how many times is the interest compounded in a year?

• 2

• 6

• 4

• 3

What is the exponent in the formula when interest is compounded monthly for 5 years?

• 120

• 60

• 5

• 12

What is the account balance after 5 years if the interest is compounded annually?

• $3,052

• $3,050

• $3,060

• $3,041

What is the account balance after 5 years if the interest is compounded quarterly?

• $3,052

• $3,050

• $3,060

• $3,041

What is the account balance after 5 years if the interest is compounded monthly?

• $3,041

• $3,060

• $3,050

• $3,052

What conclusion can be drawn about the frequency of compounding and the account balance?

• Compounding frequency only affects the principal

• Less frequent compounding results in a higher balance

• More frequent compounding results in a higher balance

• Frequency of compounding does not affect the balance