Understanding Interest Calculations

The video tutorial explains the concepts of simple and compound interest. It begins with an introduction to the basic principles of interest calculation, followed by a detailed example of calculating simple interest over four years with a principal of $4,000 at a rate of 2.5%. The tutorial then transitions to compound interest, illustrating how the interest is calculated differently by compounding annually. The video concludes by comparing the total interest earned in both scenarios, highlighting the additional earnings from compound interest.

What is the principal amount used in the interest calculation example?

• $2,000

• $3,000

• $4,000

• $5,000

For how many years is the principal invested in the example?

• 4 years

• 3 years

• 5 years

• 2 years

What is the annual interest rate used in the simple interest calculation?

• 1.5%

• 2.5%

• 3.5%

• 4.5%

How much total interest is earned in the simple interest scenario after four years?

• $400

• $100

• $200

• $300

What is the key difference between simple and compound interest?

• Simple interest is calculated on the initial principal only.

• Compound interest is calculated on the initial principal only.

• Compound interest is calculated on the initial principal and accumulated interest.

• Simple interest is calculated on the accumulated interest.

In the compound interest calculation, what is the formula used to calculate the total amount after four years?

• Principal * Rate * Time

• Principal + (Rate * Time)

• Principal * (1 + Rate)^Time

• Principal / (1 + Rate)^Time

What is the total amount of money after four years with compound interest?

• $4,200

• $4,400

• $4,500

• $4,100

How much more interest is earned with compound interest compared to simple interest?

• $15

• $10

• $20

• $25

What is the total interest earned with compound interest after four years?

• $410.25

• $415.25

• $405.25

• $400

Which interest calculation method results in a higher return over the same period?

• Compound interest

• Simple interest

• Both are the same

• Depends on the principal