10/07 Compound Interest Practice

Front

What does the formula for compound interest calculate?

Back

The formula for compound interest calculates the total amount of money accumulated after a certain period, including both the principal and the interest earned.

Front

What is the formula for compound interest?

Back

The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, P is the principal amount, r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the number of years.

Front

What does the variable 'A' represent in the compound interest formula?

Back

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

Front

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

Back

The variable 'P' represents the principal amount, or the initial amount of money invested or borrowed.

Front

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

Back

The variable 'r' represents the annual interest rate expressed as a decimal.

Front

What does the variable 'n' represent in the compound interest formula?

Back

The variable 'n' represents the number of times that interest is compounded per year.

Front

What does the variable 't' represent in the compound interest formula?

Back

The variable 't' represents the number of years the money is invested or borrowed.

Front

How does compounding frequency affect the total amount of interest earned?

Back

The more frequently interest is compounded, the more interest will be earned, leading to a higher total amount.

Front

What is the difference between simple interest and compound 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.

Front

If you invest $1,000 at an interest rate of 5% compounded annually for 3 years, how much will you have?

Back

You will have $1,157.63 after 3 years.