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 do you convert a percentage to a decimal?

Back

To convert a percentage to a decimal, divide the percentage by 100. For example, 6.75% becomes 0.0675.

Front

What is the formula for calculating 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, including interest, 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

If an account earns 5% interest compounded annually, how much will $1,000 grow to in 3 years?

Back

Using the formula A = P(1 + r/n)^(nt), A = 1000(1 + 0.05/1)^(1*3) = $1157.63.

Front

What does 'compounded daily' mean?

Back

Compounded daily means that the interest is calculated and added to the principal balance every day.

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

What is the total amount paid on a loan of $195,000 at 4.3% interest compounded annually after 30 years?

Back

The total amount paid will be $689,546.99.

Front

How often is interest compounded if it is compounded semi-annually?

Back

Interest is compounded twice a year if it is compounded semi-annually.

Front

What will be the balance of an account after 15 years if $475 is deposited at an interest rate of 3.8% compounded annually?

Back

The balance will be $831.10.

Front

What is the principal in the context of compound interest?

Back

The principal is the initial amount of money that is deposited or borrowed before interest.