Compound Interest

Front

What is compound interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

How is compound interest different from simple interest?

Back

Compound interest is calculated on the initial principal and also on the accumulated interest of previous periods, while simple interest is calculated only on the principal amount.

Front

What is the formula for calculating compound interest?

Back

The formula for calculating compound interest is A = P(1 + r)^t, where A is the total amount, P is the principal, r is the interest rate, and t is the time in years.

Front

In the formula A = P(1 + r)^t, what does 'P' represent?

Back

'P' represents the principal amount, which is the initial sum of money invested or borrowed.

Front

In the formula A = P(1 + r)^t, what does 'r' represent?

Back

'r' represents the annual interest rate (in decimal form) applied to the principal.

Front

In the formula A = P(1 + r)^t, what does 't' represent?

Back

't' represents the time the money is invested or borrowed for, measured in years.

Front

If $1,000 is invested at 16% interest compounded annually for 5 years, what is the ending balance?

Back

The ending balance is $2,100.34.

Front

What will be the balance after depositing $475 at an interest rate of 3.8% compounded annually for 15 years?

Back

The balance will be $831.10.

Front

What does 'A' represent in the compound interest formula A = P(1 + r)^t?

Back

'A' represents the total amount of money accumulated after n years, including interest.

Front

How do you convert a percentage to a decimal for use in the compound interest formula?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 3.8% becomes 0.038.