Understanding Compound Interest

What is one way to reduce errors when calculating compound interest?

• Memorizing the formula

• Asking a financial advisor

• Using a compound interest table

• Using a calculator

How do you determine the number of compounding periods?

• By dividing the interest rate by the number of years

• By subtracting the number of years from the interest rate

• By multiplying the number of times interest is compounded per year by the number of years

• By adding the interest rate to the number of years

What is the interest rate per compounding period if the annual rate is 8% and it is compounded quarterly?

• 1%

• 8%

• 4%

• 2%

What is the total compound amount after five years if $3000 is invested at an 8% annual interest rate compounded quarterly?

• $5000

• $4457.85

• $4000

• $3000

How much interest is earned after five years on a $3000 investment at an 8% annual interest rate compounded quarterly?

• $2000

• $1457.85

• $500

• $1000