Understanding Simple and Compound interest

Front

What is the formula for calculating simple interest?

Back

I = Prt, where I is the interest, P is the principal amount, r is the rate of interest per year, and t is the time in years.

Front

How is time represented in the simple interest formula I = Prt?

Back

Time (t) is represented in years.

Front

If time is given in months, how do you convert it to years for the simple interest calculation?

Back

Divide the number of months by 12.

Front

What does the variable 'P' represent in the simple interest formula?

Back

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

Front

What does the variable 'r' represent in the simple interest formula?

Back

r represents the rate of interest, expressed as a decimal.

Front

How do you convert a decimal to a percent?

Back

Multiply the decimal by 100 and add a percent sign.

Front

What is the importance of the interest rate in calculating simple interest?

Back

A higher interest rate increases the amount of interest earned over time.

Front

What is the relationship between time and interest earned in simple interest calculations?

Back

The longer the money is invested or borrowed, the more interest will be earned.

Front

What is compound interest?

Back

Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods.

Front

How does compound interest differ from simple interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any interest that has already been added.