Simple and Compound Interest

Front

What is Simple Interest?

Back

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

Front

What is Compound Interest?

Back

Compound Interest is the interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods.

Front

What is the formula for 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 the formula for Compound Interest?

Back

The formula for Compound Interest is A = P(1 + r)^t, where A is the total amount, P is the principal, r is the rate (as a decimal), and t is the time in years.

Front

How do you convert a percent to a decimal?

Back

To convert a percent to a decimal, divide the percent by 100. For example, 4.3% becomes 0.043.

Front

In the formula I = P * r * t, what does 'P' represent?

Back

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

Front

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

Back

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

Front

If you have $1,000 at a 5% simple interest rate for 3 years, how much interest will you earn?

Back

You will earn $150 in interest.

Front

What is the difference between Simple Interest and Compound Interest?

Back

Simple Interest is calculated only on the principal, while Compound Interest is calculated on the principal plus any accumulated interest.

Front

What does 'r' represent in the interest formulas?

Back

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