8.12D Simple and Compound Interest Part 2

Front

What is simple interest?

Back

Simple interest is calculated only on the principal amount, or the original amount of money deposited or borrowed.

Front

What is the formula for calculating simple interest?

Back

The formula for simple interest is: I = P * r * t, where I is the interest, P is the principal, r is the rate (as a decimal), and t is the time in years.

Front

What is compound interest?

Back

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

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, P is the principal, 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 it mean to have interest compounded annually?

Back

It means that the interest is calculated and added to the principal once per year.

Front

If you deposit $1,500 at a 7% annual compound interest rate, how much will you have after 3 years?

Back

You will have $1,837.56 after 3 years.

Front

How do you calculate the total amount owed on a loan with compound interest?

Back

You use the compound interest formula to find the total amount owed, which includes both the principal and the interest.

Front

What is the difference between simple and compound interest?

Back

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

Front

What is the total amount Jacob owes after borrowing $500 at 2.5% compounded annually for 5 years?

Back

Jacob owes $565.70 after 5 years.

Front

How do you find the interest earned on a savings account with compound interest?

Back

Subtract the principal from the total amount after the interest has been applied.